Correlation Between Nu Holdings and Provident Financial

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

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

Diversification Opportunities for Nu Holdings and Provident Financial

-0.47

Correlation Coefficient

Nu Holdings  Provident Financial

Very good diversification

The 3 months correlation between Nu Holdings and Provident is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nu Holdings and Provident Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial and Nu Holdings 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 Nu Holdings are associated (or correlated) with Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of Nu Holdings i.e., Nu Holdings and Provident Financial go up and down completely randomly.

Pair Corralation between Nu Holdings and Provident Financial

Allowing for the 90-day total investment horizon Nu Holdings is expected to under-perform the Provident Financial. In addition to that, Nu Holdings is 2.13 times more volatile than Provident Financial Holdings. It trades about -0.14 of its total potential returns per unit of risk. Provident Financial Holdings is currently generating about 0.14 per unit of volatility. If you would invest  1,422  in Provident Financial Holdings on September 30, 2024 and sell it today you would earn a total of  169.00  from holding Provident Financial Holdings or generate 11.88% return on investment over 90 days.

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

Nu Holdings  vs.  Provident Financial Holdings

Nu Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nu Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Provident Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Provident Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nu Holdings and Provident Financial

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

The idea behind Nu Holdings and Provident Financial Holdings 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.