Correlation Between Nicholas Fund and Nicholas Equity

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

By analyzing existing cross correlation between Nicholas Fund Inc and Nicholas Equity Income, you can compare the effects of market volatilities on Nicholas Fund and Nicholas Equity 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 Nicholas Fund with a short position of Nicholas Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nicholas Fund and Nicholas Equity.

Diversification Opportunities for Nicholas Fund and Nicholas Equity

0.62

Correlation Coefficient

Nicholas Fund  Nicholas Equity

Poor diversification

The 3 months correlation between Nicholas and Nicholas is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Nicholas Fund Inc and Nicholas Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nicholas Equity Income and Nicholas Fund 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 Nicholas Fund Inc are associated (or correlated) with Nicholas Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nicholas Equity Income has no effect on the direction of Nicholas Fund i.e., Nicholas Fund and Nicholas Equity go up and down completely randomly.

Pair Corralation between Nicholas Fund and Nicholas Equity

Assuming the 90 days horizon Nicholas Fund Inc is expected to generate 1.46 times more return on investment than Nicholas Equity. However, Nicholas Fund is 1.46 times more volatile than Nicholas Equity Income. It trades about 0.12 of its potential returns per unit of risk. Nicholas Equity Income is currently generating about 0.01 per unit of risk. If you would invest  9,522  in Nicholas Fund Inc on September 16, 2024 and sell it today you would earn a total of  541.00  from holding Nicholas Fund Inc or generate 5.68% return on investment over 90 days.

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

Nicholas Fund Inc  vs.  Nicholas Equity Income

Nicholas Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nicholas Fund Inc are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nicholas Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nicholas Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nicholas Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Nicholas Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nicholas Fund and Nicholas Equity

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

The idea behind Nicholas Fund Inc and Nicholas Equity Income 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.