Correlation Between NFI and Dowlais Group

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

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

Diversification Opportunities for NFI and Dowlais Group

-0.65

Correlation Coefficient

NFI  Dowlais Group

Excellent diversification

The 3 months correlation between NFI and Dowlais is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding NFI Group and Dowlais Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dowlais Group plc and NFI 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 NFI Group are associated (or correlated) with Dowlais Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dowlais Group plc has no effect on the direction of NFI i.e., NFI and Dowlais Group go up and down completely randomly.

Pair Corralation between NFI and Dowlais Group

Assuming the 90 days horizon NFI Group is expected to under-perform the Dowlais Group. In addition to that, NFI is 1.55 times more volatile than Dowlais Group plc. It trades about -0.01 of its total potential returns per unit of risk. Dowlais Group plc is currently generating about 0.09 per unit of volatility. If you would invest  73.00  in Dowlais Group plc on December 20, 2024 and sell it today you would earn a total of  11.00  from holding Dowlais Group plc or generate 15.07% return on investment over 90 days.

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

NFI Group  vs.  Dowlais Group plc

NFI Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days NFI Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, NFI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Dowlais Group plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dowlais Group plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Dowlais Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NFI and Dowlais Group

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

The idea behind NFI Group and Dowlais Group plc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.