Correlation Between Great Wall and NFI

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

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

Diversification Opportunities for Great Wall and NFI

0.31

Correlation Coefficient

Great Wall  NFI

Weak diversification

The 3 months correlation between Great and NFI is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Great Wall Motor and NFI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NFI Group and Great Wall 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 Great Wall Motor are associated (or correlated) with NFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NFI Group has no effect on the direction of Great Wall i.e., Great Wall and NFI go up and down completely randomly.

Pair Corralation between Great Wall and NFI

Assuming the 90 days horizon Great Wall Motor is expected to generate 1.77 times more return on investment than NFI. However, Great Wall is 1.77 times more volatile than NFI Group. It trades about -0.03 of its potential returns per unit of risk. NFI Group is currently generating about -0.18 per unit of risk. If you would invest  186.00  in Great Wall Motor on October 23, 2024 and sell it today you would lose (20.00) from holding Great Wall Motor or give up 10.75% of portfolio value over 90 days.

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

Great Wall Motor  vs.  NFI Group

Great Wall Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Wall Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NFI Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NFI Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Great Wall and NFI

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

The idea behind Great Wall Motor and NFI Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.