Correlation Between NMC and SMART

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

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

Diversification Opportunities for NMC and SMART

0.31

Correlation Coefficient

NMC  SMART

Weak diversification

The 3 months correlation between NMC and SMART is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding NMC and SMART in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMART and NMC 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 NMC are associated (or correlated) with SMART. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMART has no effect on the direction of NMC i.e., NMC and SMART go up and down completely randomly.

Pair Corralation between NMC and SMART

Assuming the 90 days trading horizon NMC is expected to generate 0.36 times more return on investment than SMART. However, NMC is 2.8 times less risky than SMART. It trades about 0.06 of its potential returns per unit of risk. SMART is currently generating about -0.13 per unit of risk. If you would invest  91.00  in NMC on December 29, 2024 and sell it today you would earn a total of  6.00  from holding NMC or generate 6.59% return on investment over 90 days.

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

NMC  vs.  SMART

NMC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NMC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, NMC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

SMART

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMART has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for SMART shareholders.

Pair Trading with NMC and SMART

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

The idea behind NMC and SMART 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.