Correlation Between True USD and NEO

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

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

Diversification Opportunities for True USD and NEO

0.58

Correlation Coefficient

True USD  NEO

Very weak diversification

The 3 months correlation between True and NEO is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding True USD and NEO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEO and True USD 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 True USD are associated (or correlated) with NEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEO has no effect on the direction of True USD i.e., True USD and NEO go up and down completely randomly.

Pair Corralation between True USD and NEO

Assuming the 90 days trading horizon True USD is expected to generate 471.91 times less return on investment than NEO. But when comparing it to its historical volatility, True USD is 10.65 times less risky than NEO. It trades about 0.0 of its potential returns per unit of risk. NEO is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  865.00  in NEO on January 20, 2024 and sell it today you would earn a total of  999.00  from holding NEO or generate 115.49% return on investment over 90 days.

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

True USD  vs.  NEO

True USD

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in True USD are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, True USD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with True USD and NEO

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

The idea behind True USD and NEO 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .