Correlation Between DATA and Nano

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

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

Diversification Opportunities for DATA and Nano

0.84

Correlation Coefficient

DATA  Nano

Very poor diversification

The 3 months correlation between DATA and Nano is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding DATA and Nano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nano and DATA 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 DATA are associated (or correlated) with Nano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nano has no effect on the direction of DATA i.e., DATA and Nano go up and down completely randomly.

Pair Corralation between DATA and Nano

Assuming the 90 days trading horizon DATA is expected to generate 1.23 times more return on investment than Nano. However, DATA is 1.23 times more volatile than Nano. It trades about -0.06 of its potential returns per unit of risk. Nano is currently generating about -0.22 per unit of risk. If you would invest  7.59  in DATA on January 26, 2024 and sell it today you would lose (1.14) from holding DATA or give up 15.02% of portfolio value over 90 days.

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

DATA  vs.  Nano

DATA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nano

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nano are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Nano exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and Nano

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

The idea behind DATA and Nano 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.