Correlation Between Flow and Near

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

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

Diversification Opportunities for Flow and Near

0.42

Correlation Coefficient

Flow  Near

Very weak diversification

The 3 months correlation between Flow and Near is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Flow and Near in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Near and Flow 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 Flow are associated (or correlated) with Near. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Near has no effect on the direction of Flow i.e., Flow and Near go up and down completely randomly.

Pair Corralation between Flow and Near

Assuming the 90 days trading horizon Flow is expected to generate 6.84 times less return on investment than Near. But when comparing it to its historical volatility, Flow is 1.49 times less risky than Near. It trades about 0.01 of its potential returns per unit of risk. Near is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  368.00  in Near on August 4, 2024 and sell it today you would earn a total of  23.00  from holding Near or generate 6.25% return on investment over 90 days.

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

Flow  vs.  Near

Flow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Flow is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Near

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Near are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Near exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flow and Near

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

The idea behind Flow and Near 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.