Correlation Between Power FinanceLimited and NBCC

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

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

Diversification Opportunities for Power FinanceLimited and NBCC

0.63

Correlation Coefficient

Power FinanceLimited  NBCC

Poor diversification

The 3 months correlation between Power and NBCC is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC Limited and Power FinanceLimited 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 Power Finance are associated (or correlated) with NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of Power FinanceLimited i.e., Power FinanceLimited and NBCC go up and down completely randomly.

Pair Corralation between Power FinanceLimited and NBCC

Assuming the 90 days trading horizon Power Finance is expected to generate 0.82 times more return on investment than NBCC. However, Power Finance is 1.22 times less risky than NBCC. It trades about -0.02 of its potential returns per unit of risk. NBCC Limited is currently generating about -0.04 per unit of risk. If you would invest  44,384  in Power Finance on December 27, 2024 and sell it today you would lose (2,284) from holding Power Finance or give up 5.15% of portfolio value over 90 days.

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

Power Finance  vs.  NBCC Limited

Power FinanceLimited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power FinanceLimited is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

NBCC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NBCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Power FinanceLimited and NBCC

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

The idea behind Power Finance and NBCC Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.