Correlation Between Nano and POLY

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

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

Diversification Opportunities for Nano and POLY

-0.61

Correlation Coefficient

Nano  POLY

Excellent diversification

The 3 months correlation between Nano and POLY is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Nano and POLY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POLY and Nano 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 Nano are associated (or correlated) with POLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POLY has no effect on the direction of Nano i.e., Nano and POLY go up and down completely randomly.

Pair Corralation between Nano and POLY

Assuming the 90 days trading horizon Nano is expected to generate 24.48 times less return on investment than POLY. But when comparing it to its historical volatility, Nano is 9.18 times less risky than POLY. It trades about 0.04 of its potential returns per unit of risk. POLY is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  20.00  in POLY on January 18, 2024 and sell it today you would lose (13.85) from holding POLY or give up 69.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.61%
Values	Daily Returns

Nano  vs.  POLY

Nano

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nano has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nano is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

POLY

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in POLY are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, POLY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nano and POLY

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

The idea behind Nano and POLY 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.