Correlation Between PlayD and NewFlex Technology

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

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

Diversification Opportunities for PlayD and NewFlex Technology

0.13

Correlation Coefficient

PlayD  NewFlex Technology

Average diversification

The 3 months correlation between PlayD and NewFlex is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding PlayD Co and NewFlex Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewFlex Technology and PlayD 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 PlayD Co are associated (or correlated) with NewFlex Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewFlex Technology has no effect on the direction of PlayD i.e., PlayD and NewFlex Technology go up and down completely randomly.

Pair Corralation between PlayD and NewFlex Technology

Assuming the 90 days trading horizon PlayD Co is expected to generate 0.97 times more return on investment than NewFlex Technology. However, PlayD Co is 1.03 times less risky than NewFlex Technology. It trades about 0.11 of its potential returns per unit of risk. NewFlex Technology Co is currently generating about 0.02 per unit of risk. If you would invest  510,000  in PlayD Co on September 5, 2024 and sell it today you would earn a total of  128,000  from holding PlayD Co or generate 25.1% return on investment over 90 days.

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

PlayD Co  vs.  NewFlex Technology Co

PlayD

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PlayD Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, PlayD sustained solid returns over the last few months and may actually be approaching a breakup point.

NewFlex Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NewFlex Technology Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NewFlex Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PlayD and NewFlex Technology

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

The idea behind PlayD Co and NewFlex Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.