Correlation Between NEM and Lisk

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

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

Diversification Opportunities for NEM and Lisk

0.75

Correlation Coefficient

NEM  Lisk

Poor diversification

The 3 months correlation between NEM and Lisk is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NEM and Lisk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lisk 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 Lisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lisk has no effect on the direction of NEM i.e., NEM and Lisk go up and down completely randomly.

Pair Corralation between NEM and Lisk

Assuming the 90 days trading horizon NEM is expected to under-perform the Lisk. But the crypto coin apears to be less risky and, when comparing its historical volatility, NEM is 1.39 times less risky than Lisk. The crypto coin trades about -0.2 of its potential returns per unit of risk. The Lisk is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  211.00  in Lisk on January 25, 2024 and sell it today you would lose (46.00) from holding Lisk or give up 21.8% of portfolio value over 90 days.

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

NEM  vs.  Lisk

NEM

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NEM are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, NEM may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Lisk

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lisk are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Lisk exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NEM and Lisk

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

The idea behind NEM and Lisk 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.