Correlation Between Brainsway and Nextage Therapeutics
Can any of the company-specific risk be diversified away by investing in both Brainsway and Nextage Therapeutics 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 Brainsway and Nextage Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brainsway and Nextage Therapeutics, you can compare the effects of market volatilities on Brainsway and Nextage Therapeutics 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 Brainsway with a short position of Nextage Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brainsway and Nextage Therapeutics.
Diversification Opportunities for Brainsway and Nextage Therapeutics
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Brainsway and Nextage is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Brainsway and Nextage Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextage Therapeutics and Brainsway 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 Brainsway are associated (or correlated) with Nextage Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextage Therapeutics has no effect on the direction of Brainsway i.e., Brainsway and Nextage Therapeutics go up and down completely randomly.
Pair Corralation between Brainsway and Nextage Therapeutics
Assuming the 90 days trading horizon Brainsway is expected to under-perform the Nextage Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Brainsway is 7.57 times less risky than Nextage Therapeutics. The stock trades about -0.18 of its potential returns per unit of risk. The Nextage Therapeutics is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 3,700 in Nextage Therapeutics on January 24, 2024 and sell it today you would earn a total of 3,400 from holding Nextage Therapeutics or generate 91.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 94.12% |
| Values | Daily Returns |
Brainsway vs. Nextage Therapeutics
Performance |
| Timeline |
| Brainsway |
| Nextage Therapeutics |
Brainsway and Nextage Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brainsway and Nextage Therapeutics
The main advantage of trading using opposite Brainsway and Nextage Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brainsway position performs unexpectedly, Nextage Therapeutics 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 Nextage Therapeutics will offset losses from the drop in Nextage Therapeutics' long position.The idea behind Brainsway and Nextage Therapeutics 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.Check out your portfolio center.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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