Correlation Between Modiv and NexPoint Diversified

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

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

Diversification Opportunities for Modiv and NexPoint Diversified

0.8

Correlation Coefficient

Modiv  NexPoint Diversified

Very poor diversification

The 3 months correlation between Modiv and NexPoint is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Modiv Inc and NexPoint Diversified Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexPoint Diversified Real and Modiv 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 Modiv Inc are associated (or correlated) with NexPoint Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexPoint Diversified Real has no effect on the direction of Modiv i.e., Modiv and NexPoint Diversified go up and down completely randomly.

Pair Corralation between Modiv and NexPoint Diversified

Assuming the 90 days trading horizon Modiv Inc is expected to under-perform the NexPoint Diversified. But the preferred stock apears to be less risky and, when comparing its historical volatility, Modiv Inc is 1.31 times less risky than NexPoint Diversified. The preferred stock trades about -0.16 of its potential returns per unit of risk. The NexPoint Diversified Real is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,591  in NexPoint Diversified Real on August 31, 2024 and sell it today you would earn a total of  36.00  from holding NexPoint Diversified Real or generate 2.26% return on investment over 90 days.

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

Modiv Inc  vs.  NexPoint Diversified Real

Modiv Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Modiv Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Modiv is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NexPoint Diversified Real

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NexPoint Diversified Real are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, NexPoint Diversified sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Modiv and NexPoint Diversified

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

The idea behind Modiv Inc and NexPoint Diversified Real 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.