Correlation Between NBI Active and NBI High

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

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

Diversification Opportunities for NBI Active and NBI High

0.15

Correlation Coefficient

NBI Active  NBI High

Average diversification

The 3 months correlation between NBI and NBI is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NBI Active Canadian and NBI High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI High Yield and NBI Active 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 NBI Active Canadian are associated (or correlated) with NBI High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI High Yield has no effect on the direction of NBI Active i.e., NBI Active and NBI High go up and down completely randomly.

Pair Corralation between NBI Active and NBI High

Assuming the 90 days trading horizon NBI Active Canadian is expected to generate 0.78 times more return on investment than NBI High. However, NBI Active Canadian is 1.28 times less risky than NBI High. It trades about 0.08 of its potential returns per unit of risk. NBI High Yield is currently generating about 0.05 per unit of risk. If you would invest  2,382  in NBI Active Canadian on December 29, 2024 and sell it today you would earn a total of  38.00  from holding NBI Active Canadian or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

NBI Active Canadian  vs.  NBI High Yield

NBI Active Canadian

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NBI Active Canadian are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NBI Active is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NBI High Yield

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NBI High Yield are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NBI High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NBI Active and NBI High

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

The idea behind NBI Active Canadian and NBI High Yield 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.