Correlation Between New Wave and Dedicare

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

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

Diversification Opportunities for New Wave and Dedicare

0.54

Correlation Coefficient

New Wave  Dedicare

Very weak diversification

The 3 months correlation between New and Dedicare is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding New Wave Group and Dedicare AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dedicare AB and New Wave 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 New Wave Group are associated (or correlated) with Dedicare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dedicare AB has no effect on the direction of New Wave i.e., New Wave and Dedicare go up and down completely randomly.

Pair Corralation between New Wave and Dedicare

Assuming the 90 days trading horizon New Wave Group is expected to generate 1.06 times more return on investment than Dedicare. However, New Wave is 1.06 times more volatile than Dedicare AB. It trades about -0.07 of its potential returns per unit of risk. Dedicare AB is currently generating about -0.16 per unit of risk. If you would invest  10,901  in New Wave Group on September 2, 2024 and sell it today you would lose (1,226) from holding New Wave Group or give up 11.25% of portfolio value over 90 days.

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

New Wave Group  vs.  Dedicare AB

New Wave Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Wave Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dedicare AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dedicare AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with New Wave and Dedicare

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

The idea behind New Wave Group and Dedicare AB 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.