Correlation Between SFA Engineering and NICE Information

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

By analyzing existing cross correlation between SFA Engineering and NICE Information Service, you can compare the effects of market volatilities on SFA Engineering and NICE Information 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 SFA Engineering with a short position of NICE Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of SFA Engineering and NICE Information.

Diversification Opportunities for SFA Engineering and NICE Information

-0.6

Correlation Coefficient

SFA Engineering  NICE Information

Excellent diversification

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

Pair Corralation between SFA Engineering and NICE Information

Assuming the 90 days trading horizon SFA Engineering is expected to under-perform the NICE Information. But the stock apears to be less risky and, when comparing its historical volatility, SFA Engineering is 1.29 times less risky than NICE Information. The stock trades about -0.2 of its potential returns per unit of risk. The NICE Information Service is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,206,000  in NICE Information Service on October 1, 2024 and sell it today you would earn a total of  36,000  from holding NICE Information Service or generate 2.99% return on investment over 90 days.

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

SFA Engineering  vs.  NICE Information Service

SFA Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

NICE Information Service

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NICE Information Service are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NICE Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SFA Engineering and NICE Information

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

The idea behind SFA Engineering and NICE Information Service 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.