Correlation Between NEM and Orbs
Can any of the company-specific risk be diversified away by investing in both NEM and Orbs 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 Orbs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEM and Orbs, you can compare the effects of market volatilities on NEM and Orbs 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 Orbs. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEM and Orbs.
Diversification Opportunities for NEM and Orbs
Almost no diversification
The 3 months correlation between NEM and Orbs is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding NEM and Orbs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orbs 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 Orbs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orbs has no effect on the direction of NEM i.e., NEM and Orbs go up and down completely randomly.
Pair Corralation between NEM and Orbs
Assuming the 90 days trading horizon NEM is expected to under-perform the Orbs. In addition to that, NEM is 1.14 times more volatile than Orbs. It trades about -0.24 of its total potential returns per unit of risk. Orbs is currently generating about -0.19 per unit of volatility. If you would invest 4.67 in Orbs on January 27, 2024 and sell it today you would lose (0.98) from holding Orbs or give up 20.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
NEM vs. Orbs
Performance |
| Timeline |
| NEM |
| Orbs |
NEM and Orbs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEM and Orbs
The main advantage of trading using opposite NEM and Orbs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEM position performs unexpectedly, Orbs 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 Orbs will offset losses from the drop in Orbs' long position.The idea behind NEM and Orbs 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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