Can any of the company-specific risk be diversified away by investing in both NVent Electric and Amprius Technologies 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 NVent Electric and Amprius Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVent Electric PLC and Amprius Technologies, you can compare the effects of market volatilities on NVent Electric and Amprius Technologies 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 NVent Electric with a short position of Amprius Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVent Electric and Amprius Technologies.
Diversification Opportunities for NVent Electric and Amprius Technologies
The 3 months correlation between NVent and Amprius is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NVent Electric PLC and Amprius Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amprius Technologies and NVent Electric 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 NVent Electric PLC are associated (or correlated) with Amprius Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amprius Technologies has no effect on the direction of NVent Electric i.e., NVent Electric and Amprius Technologies go up and down completely randomly.
Pair Corralation between NVent Electric and Amprius Technologies
Considering the 90-day investment horizon NVent Electric is expected to generate 4.18 times less return on investment than Amprius Technologies. But when comparing it to its historical volatility, NVent Electric PLC is 5.95 times less risky than Amprius Technologies. It trades about 0.37 of its potential returns per unit of risk. Amprius Technologies is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 278.00 in Amprius Technologies on August 30, 2023 and sell it today you would earn a total of 118.00 from holding Amprius Technologies or generate 42.45% return on investment over 90 days.
Over the last 90 days NVent Electric PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NVent Electric is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Over the last 90 days Amprius Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Amprius Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
NVent Electric and Amprius Technologies Volatility Contrast
Predicted Return Density
Pair Trading with NVent Electric and Amprius Technologies
The main advantage of trading using opposite NVent Electric and Amprius Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVent Electric position performs unexpectedly, Amprius Technologies 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 Amprius Technologies will offset losses from the drop in Amprius Technologies' long position.
The idea behind NVent Electric PLC and Amprius Technologies 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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