Correlation Between Nigerian Stock and SPTSX Dividend

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

By analyzing existing cross correlation between Nigerian Stock Exchange and SPTSX Dividend Aristocrats, you can compare the effects of market volatilities on Nigerian Stock and SPTSX Dividend 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 Nigerian Stock with a short position of SPTSX Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nigerian Stock and SPTSX Dividend.

Diversification Opportunities for Nigerian Stock and SPTSX Dividend

-0.84

Correlation Coefficient

Nigerian Stock  SPTSX Dividend

Pay attention - limited upside

The 3 months correlation between Nigerian and SPTSX is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Nigerian Stock Exchange and SPTSX Dividend Aristocrats in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPTSX Dividend Arist and Nigerian Stock 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 Nigerian Stock Exchange are associated (or correlated) with SPTSX Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPTSX Dividend Arist has no effect on the direction of Nigerian Stock i.e., Nigerian Stock and SPTSX Dividend go up and down completely randomly.

Pair Corralation between Nigerian Stock and SPTSX Dividend

Assuming the 90 days trading horizon Nigerian Stock Exchange is expected to generate 0.98 times more return on investment than SPTSX Dividend. However, Nigerian Stock Exchange is 1.02 times less risky than SPTSX Dividend. It trades about 0.33 of its potential returns per unit of risk. SPTSX Dividend Aristocrats is currently generating about -0.13 per unit of risk. If you would invest  9,729,657  in Nigerian Stock Exchange on November 27, 2024 and sell it today you would earn a total of  1,120,043  from holding Nigerian Stock Exchange or generate 11.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Nigerian Stock Exchange  vs.  SPTSX Dividend Aristocrats

Pair Trading with Nigerian Stock and SPTSX Dividend

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

The idea behind Nigerian Stock Exchange and SPTSX Dividend Aristocrats 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.