Correlation Between NEO and THR

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

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

Diversification Opportunities for NEO and THR

0.12

Correlation Coefficient

NEO  THR

Average diversification

The 3 months correlation between NEO and THR is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding NEO and THR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THR 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 THR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THR has no effect on the direction of NEO i.e., NEO and THR go up and down completely randomly.

Pair Corralation between NEO and THR

Assuming the 90 days trading horizon NEO is expected to generate 9.27 times less return on investment than THR. But when comparing it to its historical volatility, NEO is 5.91 times less risky than THR. It trades about 0.03 of its potential returns per unit of risk. THR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,266,600  in THR on January 17, 2024 and sell it today you would lose (216,885) from holding THR or give up 17.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	72.12%
Values	Daily Returns

NEO  vs.  THR

NEO

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 12 (%) 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.

THR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days THR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, THR 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 THR

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

The idea behind NEO and THR 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 CEOs Directory module to screen CEOs from public companies around the world.