Correlation Between NEO and Symbol

Can any of the company-specific risk be diversified away by investing in both NEO and Symbol 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 Symbol into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NEO and Symbol, you can compare the effects of market volatilities on NEO and Symbol 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 Symbol. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and Symbol.

Diversification Opportunities for NEO and Symbol

0.89

Correlation Coefficient

NEO  Symbol

Very poor diversification

The 3 months correlation between NEO and Symbol is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding NEO and Symbol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Symbol 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 Symbol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Symbol has no effect on the direction of NEO i.e., NEO and Symbol go up and down completely randomly.

Pair Corralation between NEO and Symbol

Assuming the 90 days trading horizon NEO is expected to generate 1.53 times less return on investment than Symbol. But when comparing it to its historical volatility, NEO is 2.04 times less risky than Symbol. It trades about 0.23 of its potential returns per unit of risk. Symbol is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1.46  in Symbol on September 2, 2024 and sell it today you would earn a total of  1.58  from holding Symbol or generate 108.22% return on investment over 90 days.

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

NEO  vs.  Symbol

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.

Symbol

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Symbol are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Symbol exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEO and Symbol

The main advantage of trading using opposite NEO and Symbol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO position performs unexpectedly, Symbol 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 Symbol will offset losses from the drop in Symbol's long position.

The idea behind NEO and Symbol 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.