Correlation Between Nintendo and NEXON Co

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

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

Diversification Opportunities for Nintendo and NEXON Co

-0.15

Correlation Coefficient

Nintendo  NEXON Co

Good diversification

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

Pair Corralation between Nintendo and NEXON Co

Assuming the 90 days horizon Nintendo Co ADR is expected to generate 0.82 times more return on investment than NEXON Co. However, Nintendo Co ADR is 1.22 times less risky than NEXON Co. It trades about 0.11 of its potential returns per unit of risk. NEXON Co is currently generating about -0.11 per unit of risk. If you would invest  1,330  in Nintendo Co ADR on September 3, 2024 and sell it today you would earn a total of  135.00  from holding Nintendo Co ADR or generate 10.15% return on investment over 90 days.

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

Nintendo Co ADR  vs.  NEXON Co

Nintendo Co ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nintendo Co ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Nintendo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NEXON Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXON Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nintendo and NEXON Co

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

The idea behind Nintendo Co ADR and NEXON Co 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.