Correlation Between Iodm and Nsx

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

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

Diversification Opportunities for Iodm and Nsx

0.16

Correlation Coefficient

Iodm  Nsx

Average diversification

The 3 months correlation between Iodm and Nsx is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Iodm and Nsx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nsx and Iodm 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 Iodm are associated (or correlated) with Nsx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nsx has no effect on the direction of Iodm i.e., Iodm and Nsx go up and down completely randomly.

Pair Corralation between Iodm and Nsx

Assuming the 90 days trading horizon Iodm is expected to generate 1.04 times more return on investment than Nsx. However, Iodm is 1.04 times more volatile than Nsx. It trades about 0.08 of its potential returns per unit of risk. Nsx is currently generating about 0.04 per unit of risk. If you would invest  16.00  in Iodm on December 28, 2024 and sell it today you would earn a total of  3.00  from holding Iodm or generate 18.75% return on investment over 90 days.

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

Iodm  vs.  Nsx

Iodm

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iodm are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Iodm unveiled solid returns over the last few months and may actually be approaching a breakup point.

Nsx

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nsx are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nsx may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iodm and Nsx

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

The idea behind Iodm and Nsx 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.