Correlation Between Nio and Ferrari NV

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

By analyzing existing cross correlation between Nio Class A and Ferrari NV, you can compare the effects of market volatilities on Nio and Ferrari NV 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 Nio with a short position of Ferrari NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio and Ferrari NV.

Diversification Opportunities for Nio and Ferrari NV

-0.1

Correlation Coefficient

Nio  Ferrari NV

Good diversification

The 3 months correlation between Nio and Ferrari is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV and Nio 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 Nio Class A are associated (or correlated) with Ferrari NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrari NV has no effect on the direction of Nio i.e., Nio and Ferrari NV go up and down completely randomly.

Pair Corralation between Nio and Ferrari NV

Considering the 90-day investment horizon Nio Class A is expected to under-perform the Ferrari NV. In addition to that, Nio is 2.0 times more volatile than Ferrari NV. It trades about -0.01 of its total potential returns per unit of risk. Ferrari NV is currently generating about 0.15 per unit of volatility. If you would invest  43,416  in Ferrari NV on November 28, 2024 and sell it today you would earn a total of  6,506  from holding Ferrari NV or generate 14.99% return on investment over 90 days.

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

Nio Class A  vs.  Ferrari NV

Nio Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Nio is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Ferrari NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrari NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ferrari NV exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nio and Ferrari NV

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

The idea behind Nio Class A and Ferrari NV 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.