Correlation Between Next Entertainment and ABCO Electronics

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

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

Diversification Opportunities for Next Entertainment and ABCO Electronics

0.52

Correlation Coefficient

Next Entertainment  ABCO Electronics

Very weak diversification

The 3 months correlation between Next and ABCO is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Next Entertainment World and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics and Next Entertainment 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 Entertainment World are associated (or correlated) with ABCO Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABCO Electronics has no effect on the direction of Next Entertainment i.e., Next Entertainment and ABCO Electronics go up and down completely randomly.

Pair Corralation between Next Entertainment and ABCO Electronics

Assuming the 90 days trading horizon Next Entertainment World is expected to generate 0.97 times more return on investment than ABCO Electronics. However, Next Entertainment World is 1.03 times less risky than ABCO Electronics. It trades about 0.05 of its potential returns per unit of risk. ABCO Electronics Co is currently generating about -0.06 per unit of risk. If you would invest  223,500  in Next Entertainment World on September 5, 2024 and sell it today you would earn a total of  12,500  from holding Next Entertainment World or generate 5.59% return on investment over 90 days.

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

Next Entertainment World  vs.  ABCO Electronics Co

Next Entertainment World

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Next Entertainment World are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Next Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ABCO Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABCO Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Next Entertainment and ABCO Electronics

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

The idea behind Next Entertainment World and ABCO Electronics 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.