Correlation Between Indra Sistemas and NEC

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

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

Diversification Opportunities for Indra Sistemas and NEC

0.27

Correlation Coefficient

Indra Sistemas  NEC

Modest diversification

The 3 months correlation between Indra and NEC is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Indra Sistemas SA and NEC Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEC Corporation and Indra Sistemas 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 Indra Sistemas SA are associated (or correlated) with NEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEC Corporation has no effect on the direction of Indra Sistemas i.e., Indra Sistemas and NEC go up and down completely randomly.

Pair Corralation between Indra Sistemas and NEC

Assuming the 90 days horizon Indra Sistemas is expected to generate 3.67 times less return on investment than NEC. But when comparing it to its historical volatility, Indra Sistemas SA is 1.58 times less risky than NEC. It trades about 0.03 of its potential returns per unit of risk. NEC Corporation is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,974  in NEC Corporation on September 26, 2024 and sell it today you would earn a total of  3,673  from holding NEC Corporation or generate 73.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	71.7%
Values	Daily Returns

Indra Sistemas SA  vs.  NEC Corp.

Indra Sistemas SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indra Sistemas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NEC Corporation

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Indra Sistemas and NEC

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

The idea behind Indra Sistemas SA and NEC Corporation 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.