Correlation Between VETIVA INDUSTRIAL and Nigerian Stock

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

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

Diversification Opportunities for VETIVA INDUSTRIAL and Nigerian Stock

-0.27

Correlation Coefficient

VETIVA INDUSTRIAL  Nigerian Stock

Very good diversification

The 3 months correlation between VETIVA and Nigerian is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding VETIVA INDUSTRIAL ETF and Nigerian Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nigerian Stock Exchange and VETIVA INDUSTRIAL 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 VETIVA INDUSTRIAL ETF are associated (or correlated) with Nigerian Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nigerian Stock Exchange has no effect on the direction of VETIVA INDUSTRIAL i.e., VETIVA INDUSTRIAL and Nigerian Stock go up and down completely randomly.

Pair Corralation between VETIVA INDUSTRIAL and Nigerian Stock

Assuming the 90 days trading horizon VETIVA INDUSTRIAL ETF is expected to under-perform the Nigerian Stock. In addition to that, VETIVA INDUSTRIAL is 3.88 times more volatile than Nigerian Stock Exchange. It trades about -0.1 of its total potential returns per unit of risk. Nigerian Stock Exchange is currently generating about 0.28 per unit of volatility. If you would invest  9,758,481  in Nigerian Stock Exchange on October 8, 2024 and sell it today you would earn a total of  600,119  from holding Nigerian Stock Exchange or generate 6.15% return on investment over 90 days.

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

VETIVA INDUSTRIAL ETF  vs.  Nigerian Stock Exchange

Pair Trading with VETIVA INDUSTRIAL and Nigerian Stock

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

The idea behind VETIVA INDUSTRIAL ETF and Nigerian Stock Exchange 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.