Correlation Between Nextmart and City View

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

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

Diversification Opportunities for Nextmart and City View

-0.12

Correlation Coefficient

Nextmart  City View

Good diversification

The 3 months correlation between Nextmart and City is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and City View Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City View Green and Nextmart 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 Nextmart are associated (or correlated) with City View. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City View Green has no effect on the direction of Nextmart i.e., Nextmart and City View go up and down completely randomly.

Pair Corralation between Nextmart and City View

Given the investment horizon of 90 days Nextmart is expected to generate 2.83 times more return on investment than City View. However, Nextmart is 2.83 times more volatile than City View Green. It trades about 0.15 of its potential returns per unit of risk. City View Green is currently generating about 0.1 per unit of risk. If you would invest  0.04  in Nextmart on September 25, 2024 and sell it today you would lose (0.03) from holding Nextmart or give up 75.0% of portfolio value over 90 days.

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

Nextmart  vs.  City View Green

Nextmart

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

City View Green

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in City View Green are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, City View reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextmart and City View

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

The idea behind Nextmart and City View Green 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.