Correlation Between Nano and CMT

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

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

Diversification Opportunities for Nano and CMT

0.53

Correlation Coefficient

Nano  CMT

Very weak diversification

The 3 months correlation between Nano and CMT is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nano and CMT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMT and Nano 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 Nano are associated (or correlated) with CMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMT has no effect on the direction of Nano i.e., Nano and CMT go up and down completely randomly.

Pair Corralation between Nano and CMT

Assuming the 90 days trading horizon Nano is expected to generate 1.1 times less return on investment than CMT. In addition to that, Nano is 1.25 times more volatile than CMT. It trades about 0.17 of its total potential returns per unit of risk. CMT is currently generating about 0.23 per unit of volatility. If you would invest  0.47  in CMT on August 30, 2024 and sell it today you would earn a total of  0.29  from holding CMT or generate 60.46% return on investment over 90 days.

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

Nano  vs.  CMT

Nano

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nano are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Nano exhibited solid returns over the last few months and may actually be approaching a breakup point.

CMT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nano and CMT

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

The idea behind Nano and CMT 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 Commodity Directory module to find actively traded commodities issued by global exchanges.