Correlation Between NEO and OLT

Can any of the company-specific risk be diversified away by investing in both NEO and OLT at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NEO and OLT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NEO and OLT, you can compare the effects of market volatilities on NEO and OLT and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NEO with a short position of OLT. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and OLT.

Diversification Opportunities for NEO and OLT

-0.39

Correlation Coefficient

NEO  OLT

Very good diversification

The 3 months correlation between NEO and OLT is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding NEO and OLT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OLT and NEO is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NEO are associated (or correlated) with OLT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OLT has no effect on the direction of NEO i.e., NEO and OLT go up and down completely randomly.

Pair Corralation between NEO and OLT

Assuming the 90 days trading horizon NEO is expected to generate 0.28 times more return on investment than OLT. However, NEO is 3.52 times less risky than OLT. It trades about 0.23 of its potential returns per unit of risk. OLT is currently generating about -0.01 per unit of risk. If you would invest  935.00  in NEO on September 2, 2024 and sell it today you would earn a total of  665.00  from holding NEO or generate 71.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NEO  vs.  OLT

NEO

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.

OLT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OLT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for OLT shareholders.

Pair Trading with NEO and OLT

The main advantage of trading using opposite NEO and OLT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO position performs unexpectedly, OLT can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in OLT will offset losses from the drop in OLT's long position.

The idea behind NEO and OLT pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.