Correlation Between NewWave EUR and NewWave GBP

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

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

Diversification Opportunities for NewWave EUR and NewWave GBP

0.67

Correlation Coefficient

NewWave EUR  NewWave GBP

Poor diversification

The 3 months correlation between NewWave and NewWave is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding NewWave EUR Currency and NewWave GBP Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewWave GBP Currency and NewWave EUR 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 NewWave EUR Currency are associated (or correlated) with NewWave GBP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewWave GBP Currency has no effect on the direction of NewWave EUR i.e., NewWave EUR and NewWave GBP go up and down completely randomly.

Pair Corralation between NewWave EUR and NewWave GBP

Assuming the 90 days trading horizon NewWave EUR Currency is expected to generate 0.98 times more return on investment than NewWave GBP. However, NewWave EUR Currency is 1.02 times less risky than NewWave GBP. It trades about 0.11 of its potential returns per unit of risk. NewWave GBP Currency is currently generating about 0.07 per unit of risk. If you would invest  188,100  in NewWave EUR Currency on October 10, 2024 and sell it today you would earn a total of  7,300  from holding NewWave EUR Currency or generate 3.88% return on investment over 90 days.

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

NewWave EUR Currency  vs.  NewWave GBP Currency

NewWave EUR Currency

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NewWave EUR Currency are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, NewWave EUR is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NewWave GBP Currency

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NewWave GBP Currency are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, NewWave GBP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NewWave EUR and NewWave GBP

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

The idea behind NewWave EUR Currency and NewWave GBP Currency 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.