Correlation Between NBTM New and Advanced Technology

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

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

Diversification Opportunities for NBTM New and Advanced Technology

0.06

Correlation Coefficient

NBTM New  Advanced Technology

Significant diversification

The 3 months correlation between NBTM and Advanced is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials and Advanced Technology Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Technology and NBTM New 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 NBTM New Materials are associated (or correlated) with Advanced Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Technology has no effect on the direction of NBTM New i.e., NBTM New and Advanced Technology go up and down completely randomly.

Pair Corralation between NBTM New and Advanced Technology

Assuming the 90 days trading horizon NBTM New Materials is expected to generate 1.43 times more return on investment than Advanced Technology. However, NBTM New is 1.43 times more volatile than Advanced Technology Materials. It trades about 0.05 of its potential returns per unit of risk. Advanced Technology Materials is currently generating about 0.04 per unit of risk. If you would invest  917.00  in NBTM New Materials on October 4, 2024 and sell it today you would earn a total of  700.00  from holding NBTM New Materials or generate 76.34% return on investment over 90 days.

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

NBTM New Materials  vs.  Advanced Technology Materials

NBTM New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Advanced Technology

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with NBTM New and Advanced Technology

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

The idea behind NBTM New Materials and Advanced Technology Materials 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.