Correlation Between Europe 125x and Nationwide Small

Can any of the company-specific risk be diversified away by investing in both Europe 125x and Nationwide Small 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 Europe 125x and Nationwide Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Europe 125x Strategy and Nationwide Small Cap, you can compare the effects of market volatilities on Europe 125x and Nationwide Small 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 Europe 125x with a short position of Nationwide Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Europe 125x and Nationwide Small.

Diversification Opportunities for Europe 125x and Nationwide Small

-0.62

Correlation Coefficient

Europe 125x  Nationwide Small

Excellent diversification

The 3 months correlation between Europe and Nationwide is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Europe 125x Strategy and Nationwide Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Small Cap and Europe 125x 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 Europe 125x Strategy are associated (or correlated) with Nationwide Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Small Cap has no effect on the direction of Europe 125x i.e., Europe 125x and Nationwide Small go up and down completely randomly.

Pair Corralation between Europe 125x and Nationwide Small

Assuming the 90 days horizon Europe 125x Strategy is expected to generate 0.95 times more return on investment than Nationwide Small. However, Europe 125x Strategy is 1.05 times less risky than Nationwide Small. It trades about 0.22 of its potential returns per unit of risk. Nationwide Small Cap is currently generating about -0.12 per unit of risk. If you would invest  9,915  in Europe 125x Strategy on December 24, 2024 and sell it today you would earn a total of  1,540  from holding Europe 125x Strategy or generate 15.53% return on investment over 90 days.

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

Europe 125x Strategy  vs.  Nationwide Small Cap

Europe 125x Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europe 125x Strategy are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Europe 125x showed solid returns over the last few months and may actually be approaching a breakup point.

Nationwide Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nationwide Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Europe 125x and Nationwide Small

The main advantage of trading using opposite Europe 125x and Nationwide Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Europe 125x position performs unexpectedly, Nationwide Small 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 Nationwide Small will offset losses from the drop in Nationwide Small's long position.

The idea behind Europe 125x Strategy and Nationwide Small Cap 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.