Correlation Between NKN and DIA

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

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

Diversification Opportunities for NKN and DIA

0.15

Correlation Coefficient

NKN  DIA

Average diversification

The 3 months correlation between NKN and DIA is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NKN and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and NKN 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 NKN are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of NKN i.e., NKN and DIA go up and down completely randomly.

Pair Corralation between NKN and DIA

Assuming the 90 days trading horizon NKN is expected to generate 2.4 times less return on investment than DIA. But when comparing it to its historical volatility, NKN is 2.83 times less risky than DIA. It trades about 0.18 of its potential returns per unit of risk. DIA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  34.00  in DIA on September 1, 2024 and sell it today you would earn a total of  55.00  from holding DIA or generate 161.76% return on investment over 90 days.

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

NKN  vs.  DIA

NKN

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NKN are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NKN exhibited solid returns over the last few months and may actually be approaching a breakup point.

DIA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NKN and DIA

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

The idea behind NKN and DIA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.