Correlation Between NAV and XDN

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

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

Diversification Opportunities for NAV and XDN

0.31

Correlation Coefficient

NAV  XDN

Weak diversification

The 3 months correlation between NAV and XDN is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding NAV and XDN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XDN 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 XDN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XDN has no effect on the direction of NAV i.e., NAV and XDN go up and down completely randomly.

Pair Corralation between NAV and XDN

Assuming the 90 days trading horizon NAV is expected to generate 2.48 times more return on investment than XDN. However, NAV is 2.48 times more volatile than XDN. It trades about 0.02 of its potential returns per unit of risk. XDN is currently generating about 0.04 per unit of risk. If you would invest  2.62  in NAV on December 28, 2024 and sell it today you would lose (0.18) from holding NAV or give up 6.87% 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.  XDN

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.

XDN

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in XDN are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, XDN may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NAV and XDN

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

The idea behind NAV and XDN 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.