Correlation Between NBI Sustainable and NBI Active

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

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

Diversification Opportunities for NBI Sustainable and NBI Active

0.43

Correlation Coefficient

NBI Sustainable  NBI Active

Very weak diversification

The 3 months correlation between NBI and NBI is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NBI Sustainable Global and NBI Active Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI Active Canadian and NBI Sustainable 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 Sustainable Global are associated (or correlated) with NBI Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI Active Canadian has no effect on the direction of NBI Sustainable i.e., NBI Sustainable and NBI Active go up and down completely randomly.

Pair Corralation between NBI Sustainable and NBI Active

Assuming the 90 days trading horizon NBI Sustainable Global is expected to under-perform the NBI Active. In addition to that, NBI Sustainable is 3.2 times more volatile than NBI Active Canadian. It trades about -0.08 of its total potential returns per unit of risk. NBI Active Canadian is currently generating about 0.08 per unit of volatility. If you would invest  2,382  in NBI Active Canadian on December 28, 2024 and sell it today you would earn a total of  36.00  from holding NBI Active Canadian or generate 1.51% return on investment over 90 days.

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

NBI Sustainable Global  vs.  NBI Active Canadian

NBI Sustainable Global

Risk-Adjusted Performance

Very Weak

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

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 5 (%) 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.

Pair Trading with NBI Sustainable and NBI Active

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

The idea behind NBI Sustainable Global and NBI Active Canadian 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.