Correlation Between New Sources and Basic Fit

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

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

Diversification Opportunities for New Sources and Basic Fit

0.82

Correlation Coefficient

New Sources  Basic Fit

Very poor diversification

The 3 months correlation between New and Basic is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding New Sources Energy and Basic Fit NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Fit NV and New Sources 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 New Sources Energy are associated (or correlated) with Basic Fit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Fit NV has no effect on the direction of New Sources i.e., New Sources and Basic Fit go up and down completely randomly.

Pair Corralation between New Sources and Basic Fit

Assuming the 90 days trading horizon New Sources Energy is expected to generate 3.88 times more return on investment than Basic Fit. However, New Sources is 3.88 times more volatile than Basic Fit NV. It trades about 0.03 of its potential returns per unit of risk. Basic Fit NV is currently generating about -0.03 per unit of risk. If you would invest  4.70  in New Sources Energy on February 4, 2024 and sell it today you would lose (2.80) from holding New Sources Energy or give up 59.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.26%
Values	Daily Returns

New Sources Energy  vs.  Basic Fit NV

New Sources Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Sources Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Basic Fit NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Fit NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with New Sources and Basic Fit

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

The idea behind New Sources Energy and Basic Fit NV 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.