Correlation Between Nextmart and Shionogi

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

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

Diversification Opportunities for Nextmart and Shionogi

0.47

Correlation Coefficient

Nextmart  Shionogi

Very weak diversification

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

Pair Corralation between Nextmart and Shionogi

Given the investment horizon of 90 days Nextmart is expected to generate 10.95 times more return on investment than Shionogi. However, Nextmart is 10.95 times more volatile than Shionogi Co. It trades about 0.03 of its potential returns per unit of risk. Shionogi Co is currently generating about 0.11 per unit of risk. If you would invest  0.04  in Nextmart on September 26, 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	Weak
Accuracy	97.62%
Values	Daily Returns

Nextmart  vs.  Shionogi Co

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 weak primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

Shionogi

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shionogi Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Shionogi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextmart and Shionogi

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

The idea behind Nextmart and Shionogi Co 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.