Correlation Between NEO and NEXO

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

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

Diversification Opportunities for NEO and NEXO

0.85

Correlation Coefficient

NEO  NEXO

Very poor diversification

The 3 months correlation between NEO and NEXO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NEO and NEXO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXO 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 NEXO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXO has no effect on the direction of NEO i.e., NEO and NEXO go up and down completely randomly.

Pair Corralation between NEO and NEXO

Assuming the 90 days trading horizon NEO is expected to generate 2.61 times more return on investment than NEXO. However, NEO is 2.61 times more volatile than NEXO. It trades about 0.15 of its potential returns per unit of risk. NEXO is currently generating about -0.12 per unit of risk. If you would invest  1,491  in NEO on January 20, 2024 and sell it today you would earn a total of  373.00  from holding NEO or generate 25.02% return on investment over 90 days.

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

NEO  vs.  NEXO

NEO

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 13 (%) 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.

NEXO

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEXO are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEXO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEO and NEXO

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

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