Correlation Between Nano and DIA

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

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

Diversification Opportunities for Nano and DIA

0.88

Correlation Coefficient

Nano  DIA

Very poor diversification

The 3 months correlation between Nano and DIA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nano and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and Nano 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 Nano are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of Nano i.e., Nano and DIA go up and down completely randomly.

Pair Corralation between Nano and DIA

Assuming the 90 days trading horizon Nano is expected to generate 0.97 times more return on investment than DIA. However, Nano is 1.03 times less risky than DIA. It trades about -0.19 of its potential returns per unit of risk. DIA is currently generating about -0.19 per unit of risk. If you would invest  157.00  in Nano on January 29, 2024 and sell it today you would lose (40.00) from holding Nano or give up 25.48% of portfolio value over 90 days.

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

Nano  vs.  DIA

Nano

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nano are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Nano may actually be approaching a critical reversion point that can send shares even higher in May 2024.

DIA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nano and DIA

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

The idea behind Nano and DIA 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.