Correlation Between Neogen and Diversified Energy

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

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

Diversification Opportunities for Neogen and Diversified Energy

-0.6

Correlation Coefficient

Neogen  Diversified Energy

Excellent diversification

The 3 months correlation between Neogen and Diversified is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Neogen and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy and Neogen 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 Neogen are associated (or correlated) with Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of Neogen i.e., Neogen and Diversified Energy go up and down completely randomly.

Pair Corralation between Neogen and Diversified Energy

Given the investment horizon of 90 days Neogen is expected to under-perform the Diversified Energy. But the stock apears to be less risky and, when comparing its historical volatility, Neogen is 1.03 times less risky than Diversified Energy. The stock trades about -0.38 of its potential returns per unit of risk. The Diversified Energy is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,564  in Diversified Energy on September 25, 2024 and sell it today you would lose (17.00) from holding Diversified Energy or give up 1.09% of portfolio value over 90 days.

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

Neogen  vs.  Diversified Energy

Neogen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neogen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Diversified Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Neogen and Diversified Energy

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

The idea behind Neogen and Diversified Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.