Correlation Between NEO and CEL

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Can any of the company-specific risk be diversified away by investing in both NEO and CEL 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 NEO and CEL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEO and CEL, you can compare the effects of market volatilities on NEO and CEL 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 NEO with a short position of CEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and CEL.

Diversification Opportunities for NEO and CEL

0.9
  Correlation Coefficient
 NEO
 CEL

Almost no diversification

The 3 months correlation between NEO and CEL is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding NEO and CEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEL and NEO 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 NEO are associated (or correlated) with CEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEL has no effect on the direction of NEO i.e., NEO and CEL go up and down completely randomly.

Pair Corralation between NEO and CEL

Assuming the 90 days trading horizon NEO is expected to generate 1.04 times less return on investment than CEL. But when comparing it to its historical volatility, NEO is 1.28 times less risky than CEL. It trades about 0.14 of its potential returns per unit of risk. CEL is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  21.00  in CEL on December 29, 2023 and sell it today you would earn a total of  3.00  from holding CEL or generate 14.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

NEO  vs.  CEL

 Performance 
       Timeline  
NEO 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.
CEL 

Risk-Adjusted Performance

2 of 100

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

NEO and CEL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NEO and CEL

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

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