Correlation Between NLG and NEM

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

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

Diversification Opportunities for NLG and NEM

0.27

Correlation Coefficient

NLG  NEM

Modest diversification

The 3 months correlation between NLG and NEM is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NLG and NEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEM 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 NEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEM has no effect on the direction of NLG i.e., NLG and NEM go up and down completely randomly.

Pair Corralation between NLG and NEM

If you would invest  1.62  in NEM on September 2, 2024 and sell it today you would earn a total of  1.98  from holding NEM or generate 122.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.52%
Values	Daily Returns

NLG  vs.  NEM

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.

NEM

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NEM are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, NEM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NLG and NEM

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

The idea behind NLG and NEM 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.