Correlation Between Strategic Investments and Newcap Holding

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

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

Diversification Opportunities for Strategic Investments and Newcap Holding

-0.3

Correlation Coefficient

Strategic Investments  Newcap Holding

Very good diversification

The 3 months correlation between Strategic and Newcap is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Investments AS and Newcap Holding AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newcap Holding AS and Strategic Investments 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 Strategic Investments AS are associated (or correlated) with Newcap Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newcap Holding AS has no effect on the direction of Strategic Investments i.e., Strategic Investments and Newcap Holding go up and down completely randomly.

Pair Corralation between Strategic Investments and Newcap Holding

Assuming the 90 days trading horizon Strategic Investments AS is expected to under-perform the Newcap Holding. But the stock apears to be less risky and, when comparing its historical volatility, Strategic Investments AS is 1.85 times less risky than Newcap Holding. The stock trades about -0.04 of its potential returns per unit of risk. The Newcap Holding AS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9.75  in Newcap Holding AS on December 1, 2024 and sell it today you would earn a total of  1.25  from holding Newcap Holding AS or generate 12.82% return on investment over 90 days.

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

Strategic Investments AS  vs.  Newcap Holding AS

Strategic Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Investments AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Strategic Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Newcap Holding AS

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newcap Holding AS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Newcap Holding sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Investments and Newcap Holding

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

The idea behind Strategic Investments AS and Newcap Holding AS 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.