Correlation Between NKN and Numeraire

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

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

Diversification Opportunities for NKN and Numeraire

0.94

Correlation Coefficient

NKN  Numeraire

Almost no diversification

The 3 months correlation between NKN and Numeraire is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding NKN and Numeraire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Numeraire 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 Numeraire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Numeraire has no effect on the direction of NKN i.e., NKN and Numeraire go up and down completely randomly.

Pair Corralation between NKN and Numeraire

Assuming the 90 days trading horizon NKN is expected to generate 1.02 times more return on investment than Numeraire. However, NKN is 1.02 times more volatile than Numeraire. It trades about 0.2 of its potential returns per unit of risk. Numeraire is currently generating about 0.17 per unit of risk. If you would invest  6.59  in NKN on September 3, 2024 and sell it today you would earn a total of  5.41  from holding NKN or generate 82.09% return on investment over 90 days.

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

NKN  vs.  Numeraire

NKN

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NKN are ranked lower than 16 (%) 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.

Numeraire

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with NKN and Numeraire

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

The idea behind NKN and Numeraire 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.