Correlation Between Nextmart and ITOCHU

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

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

Diversification Opportunities for Nextmart and ITOCHU

0.38

Correlation Coefficient

Nextmart  ITOCHU

Weak diversification

The 3 months correlation between Nextmart and ITOCHU is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and Nextmart 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 Nextmart are associated (or correlated) with ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Nextmart i.e., Nextmart and ITOCHU go up and down completely randomly.

Pair Corralation between Nextmart and ITOCHU

Given the investment horizon of 90 days Nextmart is expected to generate 13.8 times more return on investment than ITOCHU. However, Nextmart is 13.8 times more volatile than ITOCHU. It trades about 0.15 of its potential returns per unit of risk. ITOCHU is currently generating about 0.02 per unit of risk. If you would invest  0.04  in Nextmart on September 27, 2024 and sell it today you would lose (0.03) from holding Nextmart or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Nextmart  vs.  ITOCHU

Nextmart

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

ITOCHU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, ITOCHU is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nextmart and ITOCHU

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

The idea behind Nextmart and ITOCHU 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.