Correlation Between Data Storage and NEC

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

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

Diversification Opportunities for Data Storage and NEC

-0.46

Correlation Coefficient

Data Storage  NEC

Very good diversification

The 3 months correlation between Data and NEC is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Data Storage Corp and NEC Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEC Corporation and Data Storage 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 Data Storage Corp are associated (or correlated) with NEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEC Corporation has no effect on the direction of Data Storage i.e., Data Storage and NEC go up and down completely randomly.

Pair Corralation between Data Storage and NEC

Given the investment horizon of 90 days Data Storage Corp is expected to generate 1.01 times more return on investment than NEC. However, Data Storage is 1.01 times more volatile than NEC Corporation. It trades about 0.1 of its potential returns per unit of risk. NEC Corporation is currently generating about -0.01 per unit of risk. If you would invest  363.00  in Data Storage Corp on October 14, 2024 and sell it today you would earn a total of  103.00  from holding Data Storage Corp or generate 28.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Data Storage Corp  vs.  NEC Corp.

Data Storage Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Data Storage Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Data Storage unveiled solid returns over the last few months and may actually be approaching a breakup point.

NEC Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEC Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NEC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Data Storage and NEC

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

The idea behind Data Storage Corp and NEC Corporation 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.