Correlation Between NEM and SOLVE

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

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

Diversification Opportunities for NEM and SOLVE

0.81

Correlation Coefficient

NEM  SOLVE

Very poor diversification

The 3 months correlation between NEM and SOLVE is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NEM and SOLVE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOLVE and NEM 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 NEM are associated (or correlated) with SOLVE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOLVE has no effect on the direction of NEM i.e., NEM and SOLVE go up and down completely randomly.

Pair Corralation between NEM and SOLVE

Assuming the 90 days trading horizon NEM is expected to generate 2.16 times less return on investment than SOLVE. But when comparing it to its historical volatility, NEM is 1.51 times less risky than SOLVE. It trades about 0.02 of its potential returns per unit of risk. SOLVE is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3.73  in SOLVE on January 29, 2024 and sell it today you would lose (1.65) from holding SOLVE or give up 44.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

NEM  vs.  SOLVE

NEM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NEM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, NEM exhibited solid returns over the last few months and may actually be approaching a breakup point.

SOLVE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NEM and SOLVE

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

The idea behind NEM and SOLVE 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.