Correlation Between NEM and Theta Network

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

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

Diversification Opportunities for NEM and Theta Network

0.84

Correlation Coefficient

NEM  Theta Network

Very poor diversification

The 3 months correlation between NEM and Theta is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NEM and Theta Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Theta Network 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 Theta Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Theta Network has no effect on the direction of NEM i.e., NEM and Theta Network go up and down completely randomly.

Pair Corralation between NEM and Theta Network

Assuming the 90 days trading horizon NEM is expected to generate 0.97 times more return on investment than Theta Network. However, NEM is 1.03 times less risky than Theta Network. It trades about -0.18 of its potential returns per unit of risk. Theta Network is currently generating about -0.19 per unit of risk. If you would invest  4.85  in NEM on January 20, 2024 and sell it today you would lose (1.26) from holding NEM or give up 25.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

NEM  vs.  Theta Network

NEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, NEM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Theta Network

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with NEM and Theta Network

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

The idea behind NEM and Theta Network 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.