Correlation Between Chardan NexTech and Encore Wire

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

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

Diversification Opportunities for Chardan NexTech and Encore Wire

0.31

Correlation Coefficient

Chardan NexTech  Encore Wire

Weak diversification

The 3 months correlation between Chardan and Encore is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Chardan NexTech Acquisition and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Chardan NexTech 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 Chardan NexTech Acquisition are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Chardan NexTech i.e., Chardan NexTech and Encore Wire go up and down completely randomly.

Pair Corralation between Chardan NexTech and Encore Wire

Given the investment horizon of 90 days Chardan NexTech Acquisition is expected to generate 3.11 times more return on investment than Encore Wire. However, Chardan NexTech is 3.11 times more volatile than Encore Wire. It trades about 0.22 of its potential returns per unit of risk. Encore Wire is currently generating about 0.29 per unit of risk. If you would invest  52.00  in Chardan NexTech Acquisition on January 20, 2024 and sell it today you would earn a total of  24.00  from holding Chardan NexTech Acquisition or generate 46.15% return on investment over 90 days.

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

Chardan NexTech Acquisition  vs.  Encore Wire

Chardan NexTech Acqu

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chardan NexTech Acquisition are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Chardan NexTech demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Encore Wire

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chardan NexTech and Encore Wire

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

The idea behind Chardan NexTech Acquisition and Encore Wire 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.