Correlation Between Dewey Electronics and NZX

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

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

Diversification Opportunities for Dewey Electronics and NZX

0.5

Correlation Coefficient

Dewey Electronics  NZX

Very weak diversification

The 3 months correlation between Dewey and NZX is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding The Dewey Electronics and NZX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NZX Limited and Dewey Electronics 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 The Dewey Electronics are associated (or correlated) with NZX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NZX Limited has no effect on the direction of Dewey Electronics i.e., Dewey Electronics and NZX go up and down completely randomly.

Pair Corralation between Dewey Electronics and NZX

Given the investment horizon of 90 days Dewey Electronics is expected to generate 4.09 times less return on investment than NZX. But when comparing it to its historical volatility, The Dewey Electronics is 4.89 times less risky than NZX. It trades about 0.21 of its potential returns per unit of risk. NZX Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  59.00  in NZX Limited on February 3, 2024 and sell it today you would earn a total of  6.00  from holding NZX Limited or generate 10.17% return on investment over 90 days.

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

The Dewey Electronics  vs.  NZX Limited

Dewey Electronics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Dewey Electronics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Dewey Electronics may actually be approaching a critical reversion point that can send shares even higher in June 2024.

NZX Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NZX Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NZX reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dewey Electronics and NZX

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

The idea behind The Dewey Electronics and NZX Limited 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.