Correlation Between Next Bt and Daiyang Metal

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

By analyzing existing cross correlation between Next Bt Co and Daiyang Metal Co, you can compare the effects of market volatilities on Next Bt and Daiyang Metal 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 Next Bt with a short position of Daiyang Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Next Bt and Daiyang Metal.

Diversification Opportunities for Next Bt and Daiyang Metal

0.64

Correlation Coefficient

Next Bt  Daiyang Metal

Poor diversification

The 3 months correlation between Next and Daiyang is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Next Bt Co and Daiyang Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiyang Metal and Next Bt 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 Next Bt Co are associated (or correlated) with Daiyang Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiyang Metal has no effect on the direction of Next Bt i.e., Next Bt and Daiyang Metal go up and down completely randomly.

Pair Corralation between Next Bt and Daiyang Metal

Assuming the 90 days trading horizon Next Bt Co is expected to under-perform the Daiyang Metal. But the stock apears to be less risky and, when comparing its historical volatility, Next Bt Co is 1.12 times less risky than Daiyang Metal. The stock trades about -0.03 of its potential returns per unit of risk. The Daiyang Metal Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  318,500  in Daiyang Metal Co on October 4, 2024 and sell it today you would lose (164,400) from holding Daiyang Metal Co or give up 51.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.53%
Values	Daily Returns

Next Bt Co  vs.  Daiyang Metal Co

Next Bt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next Bt Co 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Daiyang Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Next Bt and Daiyang Metal

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

The idea behind Next Bt Co and Daiyang Metal Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.