Can any of the company-specific risk be diversified away by investing in both NikolaCorp and BANORT 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 NikolaCorp and BANORT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NikolaCorp and BANORT 8 38, you can compare the effects of market volatilities on NikolaCorp and BANORT 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 NikolaCorp with a short position of BANORT. Check out your portfolio center. Please also check ongoing floating volatility patterns of NikolaCorp and BANORT.
Diversification Opportunities for NikolaCorp and BANORT
The 3 months correlation between NikolaCorp and BANORT is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NikolaCorp and BANORT 8 3/8 PERP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANORT 8 38 and NikolaCorp 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 NikolaCorp are associated (or correlated) with BANORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANORT 8 38 has no effect on the direction of NikolaCorp i.e., NikolaCorp and BANORT go up and down completely randomly.
Given the investment horizon of 90 days NikolaCorp is expected to under-perform the BANORT. In addition to that, NikolaCorp is 6.87 times more volatile than BANORT 8 38. It trades about -0.03 of its total potential returns per unit of risk. BANORT 8 38 is currently generating about -0.04 per unit of volatility. If you would invest 11,500 in BANORT 8 38 on September 1, 2023 and sell it today you would lose (1,910) from holding BANORT 8 38 or give up 16.61% of portfolio value over 90 days.
Over the last 90 days NikolaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, NikolaCorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days BANORT 8 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BANORT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite NikolaCorp and BANORT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NikolaCorp position performs unexpectedly, BANORT 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 BANORT will offset losses from the drop in BANORT's long position.
The idea behind NikolaCorp and BANORT 8 38 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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