Correlation Between Icape Holding and Nacon Sa

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

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

Diversification Opportunities for Icape Holding and Nacon Sa

0.87

Correlation Coefficient

Icape Holding  Nacon Sa

Very poor diversification

The 3 months correlation between Icape and Nacon is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Icape Holding and Nacon Sa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nacon Sa and Icape Holding 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 Icape Holding are associated (or correlated) with Nacon Sa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nacon Sa has no effect on the direction of Icape Holding i.e., Icape Holding and Nacon Sa go up and down completely randomly.

Pair Corralation between Icape Holding and Nacon Sa

Assuming the 90 days trading horizon Icape Holding is expected to generate 1.16 times less return on investment than Nacon Sa. But when comparing it to its historical volatility, Icape Holding is 1.23 times less risky than Nacon Sa. It trades about 0.24 of its potential returns per unit of risk. Nacon Sa is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  55.00  in Nacon Sa on October 7, 2024 and sell it today you would earn a total of  16.00  from holding Nacon Sa or generate 29.09% return on investment over 90 days.

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

Icape Holding  vs.  Nacon Sa

Icape Holding

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Icape Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Icape Holding may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nacon Sa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nacon Sa has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Nacon Sa is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Icape Holding and Nacon Sa

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

The idea behind Icape Holding and Nacon Sa 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.