Correlation Between New Generation and Cloudweb

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

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

Diversification Opportunities for New Generation and Cloudweb

0.09

Correlation Coefficient

New Generation  Cloudweb

Significant diversification

The 3 months correlation between New and Cloudweb is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and Cloudweb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloudweb and New Generation 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 Generation Consumer are associated (or correlated) with Cloudweb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloudweb has no effect on the direction of New Generation i.e., New Generation and Cloudweb go up and down completely randomly.

Pair Corralation between New Generation and Cloudweb

Given the investment horizon of 90 days New Generation is expected to generate 1.13 times less return on investment than Cloudweb. In addition to that, New Generation is 1.17 times more volatile than Cloudweb. It trades about 0.06 of its total potential returns per unit of risk. Cloudweb is currently generating about 0.08 per unit of volatility. If you would invest  3.80  in Cloudweb on December 3, 2024 and sell it today you would earn a total of  0.20  from holding Cloudweb or generate 5.26% return on investment over 90 days.

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

New Generation Consumer  vs.  Cloudweb

New Generation Consumer

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.

Cloudweb

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudweb are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cloudweb showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Generation and Cloudweb

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

The idea behind New Generation Consumer and Cloudweb 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.