Correlation Between NET Power and Magnite

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

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

Diversification Opportunities for NET Power and Magnite

0.82

Correlation Coefficient

NET Power  Magnite

Very poor diversification

The 3 months correlation between NET and Magnite is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding NET Power and Magnite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnite and NET Power 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 NET Power are associated (or correlated) with Magnite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnite has no effect on the direction of NET Power i.e., NET Power and Magnite go up and down completely randomly.

Pair Corralation between NET Power and Magnite

Given the investment horizon of 90 days NET Power is expected to under-perform the Magnite. In addition to that, NET Power is 1.53 times more volatile than Magnite. It trades about -0.39 of its total potential returns per unit of risk. Magnite is currently generating about -0.09 per unit of volatility. If you would invest  1,655  in Magnite on September 22, 2024 and sell it today you would lose (83.00) from holding Magnite or give up 5.02% of portfolio value over 90 days.

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

NET Power  vs.  Magnite

NET Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NET Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, NET Power reported solid returns over the last few months and may actually be approaching a breakup point.

Magnite

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magnite are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Magnite demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NET Power and Magnite

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

The idea behind NET Power and Magnite 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.