Correlation Between NBTM New and Western Metal

Can any of the company-specific risk be diversified away by investing in both NBTM New and Western 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 NBTM New and Western Metal 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 Western Metal Materials, you can compare the effects of market volatilities on NBTM New and Western 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 NBTM New with a short position of Western Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of NBTM New and Western Metal.

Diversification Opportunities for NBTM New and Western Metal

-0.1

Correlation Coefficient

NBTM New  Western Metal

Good diversification

The 3 months correlation between NBTM and Western is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials and Western Metal Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metal Materials 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 Western Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metal Materials has no effect on the direction of NBTM New i.e., NBTM New and Western Metal go up and down completely randomly.

Pair Corralation between NBTM New and Western Metal

Assuming the 90 days trading horizon NBTM New Materials is expected to under-perform the Western Metal. In addition to that, NBTM New is 1.05 times more volatile than Western Metal Materials. It trades about -0.05 of its total potential returns per unit of risk. Western Metal Materials is currently generating about 0.08 per unit of volatility. If you would invest  1,466  in Western Metal Materials on October 9, 2024 and sell it today you would earn a total of  208.00  from holding Western Metal Materials or generate 14.19% return on investment over 90 days.

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

NBTM New Materials  vs.  Western Metal 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 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.

Western Metal Materials

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NBTM New and Western Metal

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

The idea behind NBTM New Materials and Western Metal 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.