Correlation Between Polygon and NEM

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

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

Diversification Opportunities for Polygon and NEM

0.77

Correlation Coefficient

Polygon  NEM

Poor diversification

The 3 months correlation between Polygon and NEM is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Polygon and NEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEM and Polygon 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 Polygon are associated (or correlated) with NEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEM has no effect on the direction of Polygon i.e., Polygon and NEM go up and down completely randomly.

Pair Corralation between Polygon and NEM

Assuming the 90 days trading horizon Polygon is expected to under-perform the NEM. In addition to that, Polygon is 1.08 times more volatile than NEM. It trades about -0.15 of its total potential returns per unit of risk. NEM is currently generating about -0.13 per unit of volatility. If you would invest  4.46  in NEM on January 30, 2024 and sell it today you would lose (0.69) from holding NEM or give up 15.47% of portfolio value over 90 days.

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

Polygon  vs.  NEM

Polygon

Risk-Adjusted Performance

0 of 100

Very Weak

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

NEM

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Polygon and NEM

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

The idea behind Polygon and NEM 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.