Correlation Between NEM INSURANCE and NPF MICRO

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

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

Diversification Opportunities for NEM INSURANCE and NPF MICRO

0.4

Correlation Coefficient

NEM INSURANCE  NPF MICRO

Very weak diversification

The 3 months correlation between NEM and NPF is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NEM INSURANCE PLC and NPF MICRO FINANCE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NPF MICRO FINANCE and NEM INSURANCE 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 NEM INSURANCE PLC are associated (or correlated) with NPF MICRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NPF MICRO FINANCE has no effect on the direction of NEM INSURANCE i.e., NEM INSURANCE and NPF MICRO go up and down completely randomly.

Pair Corralation between NEM INSURANCE and NPF MICRO

Assuming the 90 days trading horizon NEM INSURANCE PLC is expected to generate 1.36 times more return on investment than NPF MICRO. However, NEM INSURANCE is 1.36 times more volatile than NPF MICRO FINANCE. It trades about 0.11 of its potential returns per unit of risk. NPF MICRO FINANCE is currently generating about 0.09 per unit of risk. If you would invest  1,095  in NEM INSURANCE PLC on December 30, 2024 and sell it today you would earn a total of  255.00  from holding NEM INSURANCE PLC or generate 23.29% return on investment over 90 days.

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

NEM INSURANCE PLC  vs.  NPF MICRO FINANCE

NEM INSURANCE PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEM INSURANCE PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NEM INSURANCE unveiled solid returns over the last few months and may actually be approaching a breakup point.

NPF MICRO FINANCE

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NPF MICRO FINANCE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental drivers, NPF MICRO reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEM INSURANCE and NPF MICRO

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

The idea behind NEM INSURANCE PLC and NPF MICRO FINANCE 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.