Correlation Between NLG and BF

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

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

Diversification Opportunities for NLG and BF

0.61

Correlation Coefficient

NLG  BF

Poor diversification

The 3 months correlation between NLG and BF is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NLG and BF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF and NLG 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 NLG are associated (or correlated) with BF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF has no effect on the direction of NLG i.e., NLG and BF go up and down completely randomly.

Pair Corralation between NLG and BF

If you would invest  0.17  in BF on September 3, 2024 and sell it today you would earn a total of  0.12  from holding BF or generate 66.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.54%
Values	Daily Returns

NLG  vs.  BF

NLG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NLG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, NLG is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BF

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BF are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BF exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NLG and BF

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

The idea behind NLG and BF 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 Anywhere module to track or share privately all of your investments from the convenience of any device.