Correlation Between Gentex and Nufarm

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

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

Diversification Opportunities for Gentex and Nufarm

-0.06

Correlation Coefficient

Gentex  Nufarm

Good diversification

The 3 months correlation between Gentex and Nufarm is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Gentex and Nufarm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Limited and Gentex 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 Gentex are associated (or correlated) with Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Limited has no effect on the direction of Gentex i.e., Gentex and Nufarm go up and down completely randomly.

Pair Corralation between Gentex and Nufarm

Assuming the 90 days horizon Gentex is expected to under-perform the Nufarm. But the stock apears to be less risky and, when comparing its historical volatility, Gentex is 1.55 times less risky than Nufarm. The stock trades about -0.23 of its potential returns per unit of risk. The Nufarm Limited is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  220.00  in Nufarm Limited on October 10, 2024 and sell it today you would lose (6.00) from holding Nufarm Limited or give up 2.73% of portfolio value over 90 days.

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

Gentex  vs.  Nufarm Limited

Gentex

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gentex are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Gentex is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Nufarm Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gentex and Nufarm

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

The idea behind Gentex and Nufarm Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.