Correlation Between Nicholas Fund and Science Technology

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

By analyzing existing cross correlation between Nicholas Fund Inc and Science Technology Fund, you can compare the effects of market volatilities on Nicholas Fund and Science Technology 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 Nicholas Fund with a short position of Science Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nicholas Fund and Science Technology.

Diversification Opportunities for Nicholas Fund and Science Technology

0.87

Correlation Coefficient

Nicholas Fund  Science Technology

Very poor diversification

The 3 months correlation between Nicholas and Science is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nicholas Fund Inc and Science Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Technology and Nicholas Fund 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 Nicholas Fund Inc are associated (or correlated) with Science Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Technology has no effect on the direction of Nicholas Fund i.e., Nicholas Fund and Science Technology go up and down completely randomly.

Pair Corralation between Nicholas Fund and Science Technology

Assuming the 90 days horizon Nicholas Fund Inc is expected to generate 0.58 times more return on investment than Science Technology. However, Nicholas Fund Inc is 1.71 times less risky than Science Technology. It trades about -0.14 of its potential returns per unit of risk. Science Technology Fund is currently generating about -0.11 per unit of risk. If you would invest  9,824  in Nicholas Fund Inc on December 22, 2024 and sell it today you would lose (832.00) from holding Nicholas Fund Inc or give up 8.47% of portfolio value over 90 days.

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

Nicholas Fund Inc  vs.  Science Technology Fund

Nicholas Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nicholas Fund Inc has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Science Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Science Technology Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Nicholas Fund and Science Technology

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

The idea behind Nicholas Fund Inc and Science Technology Fund 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.