Correlation Between FinVolution and Nextmart

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

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

Diversification Opportunities for FinVolution and Nextmart

0.05

Correlation Coefficient

FinVolution  Nextmart

Significant diversification

The 3 months correlation between FinVolution and Nextmart is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding FinVolution Group and Nextmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextmart and FinVolution 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 FinVolution Group are associated (or correlated) with Nextmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextmart has no effect on the direction of FinVolution i.e., FinVolution and Nextmart go up and down completely randomly.

Pair Corralation between FinVolution and Nextmart

Given the investment horizon of 90 days FinVolution is expected to generate 45.68 times less return on investment than Nextmart. But when comparing it to its historical volatility, FinVolution Group is 32.87 times less risky than Nextmart. It trades about 0.13 of its potential returns per unit of risk. Nextmart is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Nextmart on October 4, 2024 and sell it today you would earn a total of  0.05  from holding Nextmart or generate 500.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

FinVolution Group  vs.  Nextmart

FinVolution Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FinVolution Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, FinVolution is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Nextmart

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FinVolution and Nextmart

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

The idea behind FinVolution Group and Nextmart 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.