Correlation Between Leading Edge and New Nordic

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

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

Diversification Opportunities for Leading Edge and New Nordic

0.09

Correlation Coefficient

Leading Edge  New Nordic

Significant diversification

The 3 months correlation between Leading and New is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and New Nordic Healthbrands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Nordic Healthbrands and Leading Edge 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 Leading Edge Materials are associated (or correlated) with New Nordic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Nordic Healthbrands has no effect on the direction of Leading Edge i.e., Leading Edge and New Nordic go up and down completely randomly.

Pair Corralation between Leading Edge and New Nordic

Assuming the 90 days trading horizon Leading Edge Materials is expected to generate 4.22 times more return on investment than New Nordic. However, Leading Edge is 4.22 times more volatile than New Nordic Healthbrands. It trades about 0.11 of its potential returns per unit of risk. New Nordic Healthbrands is currently generating about -0.04 per unit of risk. If you would invest  76.00  in Leading Edge Materials on December 30, 2024 and sell it today you would earn a total of  35.00  from holding Leading Edge Materials or generate 46.05% return on investment over 90 days.

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

Leading Edge Materials  vs.  New Nordic Healthbrands

Leading Edge Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Leading Edge unveiled solid returns over the last few months and may actually be approaching a breakup point.

New Nordic Healthbrands

Risk-Adjusted Performance

Very Weak

Over the last 90 days New Nordic Healthbrands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, New Nordic is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Leading Edge and New Nordic

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

The idea behind Leading Edge Materials and New Nordic Healthbrands 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.