Correlation Between Nextmart and Pharmacielo

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

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

Diversification Opportunities for Nextmart and Pharmacielo

0.14

Correlation Coefficient

Nextmart  Pharmacielo

Average diversification

The 3 months correlation between Nextmart and Pharmacielo is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and Pharmacielo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmacielo 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 Pharmacielo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmacielo has no effect on the direction of Nextmart i.e., Nextmart and Pharmacielo go up and down completely randomly.

Pair Corralation between Nextmart and Pharmacielo

Given the investment horizon of 90 days Nextmart is expected to generate 2.57 times more return on investment than Pharmacielo. However, Nextmart is 2.57 times more volatile than Pharmacielo. It trades about 0.03 of its potential returns per unit of risk. Pharmacielo is currently generating about -0.06 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 Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Nextmart  vs.  Pharmacielo

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.

Pharmacielo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pharmacielo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent 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 Nextmart and Pharmacielo

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

The idea behind Nextmart and Pharmacielo 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.