Correlation Between Quant and NEM
Can any of the company-specific risk be diversified away by investing in both Quant and NEM 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 Quant and NEM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Quant and NEM, you can compare the effects of market volatilities on Quant and NEM 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 Quant with a short position of NEM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quant and NEM.
Diversification Opportunities for Quant and NEM
Almost no diversification
The 3 months correlation between Quant and NEM is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Quant and NEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEM and Quant 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 Quant are associated (or correlated) with NEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEM has no effect on the direction of Quant i.e., Quant and NEM go up and down completely randomly.
Pair Corralation between Quant and NEM
Assuming the 90 days trading horizon Quant is expected to generate 1.7 times less return on investment than NEM. But when comparing it to its historical volatility, Quant is 1.14 times less risky than NEM. It trades about 0.02 of its potential returns per unit of risk. NEM is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3.13 in NEM on January 19, 2024 and sell it today you would earn a total of 0.42 from holding NEM or generate 13.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Quant vs. NEM
Performance |
| Timeline |
| Quant |
| NEM |
Quant and NEM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Quant and NEM
The main advantage of trading using opposite Quant and NEM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quant position performs unexpectedly, NEM 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 NEM will offset losses from the drop in NEM's long position.The idea behind Quant and NEM 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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