Correlation Between Near and Chroma

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

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

Diversification Opportunities for Near and Chroma

0.75

Correlation Coefficient

Near  Chroma

Poor diversification

The 3 months correlation between Near and Chroma is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Near and Chroma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chroma and Near 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 Near are associated (or correlated) with Chroma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chroma has no effect on the direction of Near i.e., Near and Chroma go up and down completely randomly.

Pair Corralation between Near and Chroma

Assuming the 90 days trading horizon Near is expected to generate 0.87 times more return on investment than Chroma. However, Near is 1.15 times less risky than Chroma. It trades about 0.18 of its potential returns per unit of risk. Chroma is currently generating about 0.1 per unit of risk. If you would invest  403.00  in Near on August 30, 2024 and sell it today you would earn a total of  275.00  from holding Near or generate 68.24% return on investment over 90 days.

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

Near  vs.  Chroma

Near

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Near are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Near exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chroma

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chroma are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Chroma exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Near and Chroma

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

The idea behind Near and Chroma 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.