Correlation Between NEM and Cronos

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

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

Diversification Opportunities for NEM and Cronos

0.81

Correlation Coefficient

NEM  Cronos

Very poor diversification

The 3 months correlation between NEM and Cronos is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NEM and Cronos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cronos and NEM 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 NEM are associated (or correlated) with Cronos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cronos has no effect on the direction of NEM i.e., NEM and Cronos go up and down completely randomly.

Pair Corralation between NEM and Cronos

Assuming the 90 days trading horizon NEM is expected to generate 2.13 times less return on investment than Cronos. In addition to that, NEM is 1.02 times more volatile than Cronos. It trades about 0.04 of its total potential returns per unit of risk. Cronos is currently generating about 0.09 per unit of volatility. If you would invest  8.06  in Cronos on February 5, 2024 and sell it today you would earn a total of  4.94  from holding Cronos or generate 61.29% return on investment over 90 days.

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

NEM  vs.  Cronos

NEM

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NEM are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, NEM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cronos

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cronos are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Cronos exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEM and Cronos

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

The idea behind NEM and Cronos 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.