Correlation Between Nano and REP
Can any of the company-specific risk be diversified away by investing in both Nano and REP 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 Nano and REP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nano and REP, you can compare the effects of market volatilities on Nano and REP 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 Nano with a short position of REP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nano and REP.
Diversification Opportunities for Nano and REP
Almost no diversification
The 3 months correlation between Nano and REP is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Nano and REP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REP and Nano 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 Nano are associated (or correlated) with REP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REP has no effect on the direction of Nano i.e., Nano and REP go up and down completely randomly.
Pair Corralation between Nano and REP
Assuming the 90 days trading horizon Nano is expected to under-perform the REP. In addition to that, Nano is 1.02 times more volatile than REP. It trades about -0.26 of its total potential returns per unit of risk. REP is currently generating about -0.22 per unit of volatility. If you would invest 111.00 in REP on January 20, 2024 and sell it today you would lose (29.00) from holding REP or give up 26.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nano vs. REP
Performance |
| Timeline |
| Nano |
| REP |
Nano and REP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nano and REP
The main advantage of trading using opposite Nano and REP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nano position performs unexpectedly, REP 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 REP will offset losses from the drop in REP's long position.The idea behind Nano and REP 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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