Correlation Between Vonovia SE and NEXTDC

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

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

Diversification Opportunities for Vonovia SE and NEXTDC

-0.42

Correlation Coefficient

Vonovia SE  NEXTDC

Very good diversification

The 3 months correlation between Vonovia and NEXTDC is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Vonovia SE ADR and NEXTDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC Limited and Vonovia SE 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 Vonovia SE ADR are associated (or correlated) with NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC Limited has no effect on the direction of Vonovia SE i.e., Vonovia SE and NEXTDC go up and down completely randomly.

Pair Corralation between Vonovia SE and NEXTDC

Assuming the 90 days horizon Vonovia SE ADR is expected to under-perform the NEXTDC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Vonovia SE ADR is 1.37 times less risky than NEXTDC. The pink sheet trades about -0.09 of its potential returns per unit of risk. The NEXTDC Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  888.00  in NEXTDC Limited on September 25, 2024 and sell it today you would earn a total of  118.00  from holding NEXTDC Limited or generate 13.29% return on investment over 90 days.

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

Vonovia SE ADR  vs.  NEXTDC Limited

Vonovia SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vonovia SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NEXTDC Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEXTDC Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, NEXTDC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vonovia SE and NEXTDC

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

The idea behind Vonovia SE ADR and NEXTDC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.