Correlation Between Neto ME and Carmit

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

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

Diversification Opportunities for Neto ME and Carmit

0.6

Correlation Coefficient

Neto ME  Carmit

Poor diversification

The 3 months correlation between Neto and Carmit is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Neto ME Holdings and Carmit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carmit and Neto ME 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 Neto ME Holdings are associated (or correlated) with Carmit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carmit has no effect on the direction of Neto ME i.e., Neto ME and Carmit go up and down completely randomly.

Pair Corralation between Neto ME and Carmit

Assuming the 90 days trading horizon Neto ME is expected to generate 1.3 times less return on investment than Carmit. But when comparing it to its historical volatility, Neto ME Holdings is 1.53 times less risky than Carmit. It trades about 0.02 of its potential returns per unit of risk. Carmit is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  119,200  in Carmit on September 24, 2024 and sell it today you would lose (2,700) from holding Carmit or give up 2.27% of portfolio value over 90 days.

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

Neto ME Holdings  vs.  Carmit

Neto ME Holdings

Risk-Adjusted Performance

40 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Neto ME Holdings are ranked lower than 40 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Neto ME sustained solid returns over the last few months and may actually be approaching a breakup point.

Carmit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carmit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Carmit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Neto ME and Carmit

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

The idea behind Neto ME Holdings and Carmit 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.