Correlation Between European Residential and Neo Battery

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

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

Diversification Opportunities for European Residential and Neo Battery

0.84

Correlation Coefficient

European Residential  Neo Battery

Very poor diversification

The 3 months correlation between European and Neo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Neo Battery Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Battery Materials and European Residential 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 European Residential Real are associated (or correlated) with Neo Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Battery Materials has no effect on the direction of European Residential i.e., European Residential and Neo Battery go up and down completely randomly.

Pair Corralation between European Residential and Neo Battery

Assuming the 90 days trading horizon European Residential is expected to generate 7.7 times less return on investment than Neo Battery. But when comparing it to its historical volatility, European Residential Real is 4.86 times less risky than Neo Battery. It trades about 0.21 of its potential returns per unit of risk. Neo Battery Materials is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Neo Battery Materials on September 4, 2024 and sell it today you would earn a total of  79.00  from holding Neo Battery Materials or generate 718.18% return on investment over 90 days.

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

European Residential Real  vs.  Neo Battery Materials

European Residential Real

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Neo Battery Materials

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Neo Battery Materials are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Neo Battery showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Neo Battery

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

The idea behind European Residential Real and Neo Battery 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.