Correlation Between CVP and NMR

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

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

Diversification Opportunities for CVP and NMR

0.83

Correlation Coefficient

CVP  NMR

Very poor diversification

The 3 months correlation between CVP and NMR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding CVP and NMR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMR and CVP 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 CVP are associated (or correlated) with NMR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMR has no effect on the direction of CVP i.e., CVP and NMR go up and down completely randomly.

Pair Corralation between CVP and NMR

Assuming the 90 days trading horizon CVP is expected to generate 6.3 times more return on investment than NMR. However, CVP is 6.3 times more volatile than NMR. It trades about -0.01 of its potential returns per unit of risk. NMR is currently generating about -0.16 per unit of risk. If you would invest  88.00  in CVP on December 30, 2024 and sell it today you would lose (81.15) from holding CVP or give up 92.22% of portfolio value over 90 days.

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

CVP  vs.  NMR

CVP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for CVP shareholders.

NMR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for NMR shareholders.

Pair Trading with CVP and NMR

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

The idea behind CVP and NMR 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.