Can any of the company-specific risk be diversified away by investing in both Nextnav Acquisition and Zillow Group 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 Nextnav Acquisition and Zillow Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nextnav Acquisition Corp and Zillow Group Class, you can compare the effects of market volatilities on Nextnav Acquisition and Zillow Group 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 Nextnav Acquisition with a short position of Zillow Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextnav Acquisition and Zillow Group.
Diversification Opportunities for Nextnav Acquisition and Zillow Group
The 3 months correlation between Nextnav and Zillow is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nextnav Acquisition Corp and Zillow Group Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group Class and Nextnav Acquisition 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 Nextnav Acquisition Corp are associated (or correlated) with Zillow Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group Class has no effect on the direction of Nextnav Acquisition i.e., Nextnav Acquisition and Zillow Group go up and down completely randomly.
Pair Corralation between Nextnav Acquisition and Zillow Group
Allowing for the 90-day total investment horizon Nextnav Acquisition Corp is expected to generate 3.75 times more return on investment than Zillow Group. However, Nextnav Acquisition is 3.75 times more volatile than Zillow Group Class. It trades about 0.26 of its potential returns per unit of risk. Zillow Group Class is currently generating about -0.13 per unit of risk. If you would invest 397.00 in Nextnav Acquisition Corp on June 23, 2023 and sell it today you would earn a total of 126.00 from holding Nextnav Acquisition Corp or generate 31.74% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Nextnav Acquisition Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Nextnav Acquisition displayed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Zillow Group Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Zillow Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Nextnav Acquisition and Zillow Group Volatility Contrast
Predicted Return Density
Pair Trading with Nextnav Acquisition and Zillow Group
The main advantage of trading using opposite Nextnav Acquisition and Zillow Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextnav Acquisition position performs unexpectedly, Zillow Group 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 Zillow Group will offset losses from the drop in Zillow Group's long position.
The idea behind Nextnav Acquisition Corp and Zillow Group Class 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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