Correlation Between NEO and DKargo

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

By analyzing existing cross correlation between NEO and dKargo, you can compare the effects of market volatilities on NEO and DKargo 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 DKargo. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEO and DKargo.

Diversification Opportunities for NEO and DKargo

0.64

Correlation Coefficient

NEO  DKargo

Poor diversification

The 3 months correlation between NEO and DKargo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NEO and dKargo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on dKargo 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 DKargo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of dKargo has no effect on the direction of NEO i.e., NEO and DKargo go up and down completely randomly.

Pair Corralation between NEO and DKargo

Assuming the 90 days trading horizon NEO is expected to generate 0.92 times more return on investment than DKargo. However, NEO is 1.09 times less risky than DKargo. It trades about 0.03 of its potential returns per unit of risk. dKargo is currently generating about 0.0 per unit of risk. If you would invest  1,674  in NEO on January 19, 2024 and sell it today you would earn a total of  36.00  from holding NEO or generate 2.15% return on investment over 90 days.

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

NEO  vs.  dKargo

NEO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.

dKargo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NEO and DKargo

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

The idea behind NEO and dKargo 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.