Correlation Between NAV and IOC

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

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

Diversification Opportunities for NAV and IOC

0.3

Correlation Coefficient

NAV  IOC

Weak diversification

The 3 months correlation between NAV and IOC is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NAV and IOC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IOC and NAV 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 NAV are associated (or correlated) with IOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IOC has no effect on the direction of NAV i.e., NAV and IOC go up and down completely randomly.

Pair Corralation between NAV and IOC

Assuming the 90 days trading horizon NAV is expected to generate 2.95 times more return on investment than IOC. However, NAV is 2.95 times more volatile than IOC. It trades about 0.02 of its potential returns per unit of risk. IOC is currently generating about -0.05 per unit of risk. If you would invest  2.66  in NAV on December 27, 2024 and sell it today you would lose (0.23) from holding NAV or give up 8.65% of portfolio value over 90 days.

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

NAV  vs.  IOC

NAV

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NAV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NAV may actually be approaching a critical reversion point that can send shares even higher in April 2025.

IOC

Risk-Adjusted Performance

Very Weak

Over the last 90 days IOC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for IOC shareholders.

Pair Trading with NAV and IOC

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

The idea behind NAV and IOC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.