Correlation Between Stock Exchange and Next Capital

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

By analyzing existing cross correlation between Stock Exchange Of and Next Capital Public, you can compare the effects of market volatilities on Stock Exchange and Next Capital 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 Stock Exchange with a short position of Next Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Exchange and Next Capital.

Diversification Opportunities for Stock Exchange and Next Capital

0.72

Correlation Coefficient

Stock Exchange  Next Capital

Poor diversification

The 3 months correlation between Stock and Next is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stock Exchange Of and Next Capital Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Capital Public and Stock Exchange 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 Stock Exchange Of are associated (or correlated) with Next Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Capital Public has no effect on the direction of Stock Exchange i.e., Stock Exchange and Next Capital go up and down completely randomly.

Pair Corralation between Stock Exchange and Next Capital

Assuming the 90 days trading horizon Stock Exchange Of is expected to generate 0.2 times more return on investment than Next Capital. However, Stock Exchange Of is 4.92 times less risky than Next Capital. It trades about -0.08 of its potential returns per unit of risk. Next Capital Public is currently generating about -0.15 per unit of risk. If you would invest  144,883  in Stock Exchange Of on September 28, 2024 and sell it today you would lose (5,103) from holding Stock Exchange Of or give up 3.52% of portfolio value over 90 days.

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

Stock Exchange Of  vs.  Next Capital Public

Pair Trading with Stock Exchange and Next Capital

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

The idea behind Stock Exchange Of and Next Capital Public 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..