Can any of the company-specific risk be diversified away by investing in both Nomura Holdings and Aditxt 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 Nomura Holdings and Aditxt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nomura Holdings ADR and Aditxt Inc, you can compare the effects of market volatilities on Nomura Holdings and Aditxt 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 Nomura Holdings with a short position of Aditxt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomura Holdings and Aditxt.
Diversification Opportunities for Nomura Holdings and Aditxt
The 3 months correlation between Nomura and Aditxt is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Nomura Holdings ADR and Aditxt Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aditxt Inc and Nomura Holdings 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 Nomura Holdings ADR are associated (or correlated) with Aditxt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aditxt Inc has no effect on the direction of Nomura Holdings i.e., Nomura Holdings and Aditxt go up and down completely randomly.
Pair Corralation between Nomura Holdings and Aditxt
Considering the 90-day investment horizon Nomura Holdings is expected to generate 6.97 times less return on investment than Aditxt. But when comparing it to its historical volatility, Nomura Holdings ADR is 22.61 times less risky than Aditxt. It trades about 0.08 of its potential returns per unit of risk. Aditxt Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,360 in Aditxt Inc on August 30, 2023 and sell it today you would lose (2,005) from holding Aditxt Inc or give up 84.96% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Nomura Holdings ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting primary indicators, Nomura Holdings may actually be approaching a critical reversion point that can send shares even higher in December 2023.
Compared to the overall equity markets, risk-adjusted returns on investments in Aditxt Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Aditxt showed solid returns over the last few months and may actually be approaching a breakup point.
The main advantage of trading using opposite Nomura Holdings and Aditxt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nomura Holdings position performs unexpectedly, Aditxt 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 Aditxt will offset losses from the drop in Aditxt's long position.
The idea behind Nomura Holdings ADR and Aditxt Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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