Correlation Between Nicholas Equity and Nicholas Fund

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

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

Diversification Opportunities for Nicholas Equity and Nicholas Fund

0.62

Correlation Coefficient

Nicholas Equity  Nicholas Fund

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 Equity Income and Nicholas Fund Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nicholas Fund and Nicholas Equity 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 Equity Income are associated (or correlated) with Nicholas Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nicholas Fund has no effect on the direction of Nicholas Equity i.e., Nicholas Equity and Nicholas Fund go up and down completely randomly.

Pair Corralation between Nicholas Equity and Nicholas Fund

Assuming the 90 days horizon Nicholas Equity is expected to generate 16.83 times less return on investment than Nicholas Fund. But when comparing it to its historical volatility, Nicholas Equity Income is 1.46 times less risky than Nicholas Fund. It trades about 0.01 of its potential returns per unit of risk. Nicholas Fund Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. 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 Equity Income  vs.  Nicholas Fund Inc

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.

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.

Pair Trading with Nicholas Equity and Nicholas Fund

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

The idea behind Nicholas Equity Income and Nicholas Fund Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.