Correlation Between NEM and THX

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

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

Diversification Opportunities for NEM and THX

0.0

Correlation Coefficient

NEM  THX

Pay attention - limited upside

The 3 months correlation between NEM and THX is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NEM and THX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THX 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 THX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THX has no effect on the direction of NEM i.e., NEM and THX go up and down completely randomly.

Pair Corralation between NEM and THX

Assuming the 90 days trading horizon NEM is expected to generate 1.18 times more return on investment than THX. However, NEM is 1.18 times more volatile than THX. It trades about 0.0 of its potential returns per unit of risk. THX is currently generating about -0.05 per unit of risk. If you would invest  9.49  in NEM on January 17, 2024 and sell it today you would lose (5.86) from holding NEM or give up 61.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	71.98%
Values	Daily Returns

NEM  vs.  THX

NEM

Risk-Adjusted Performance

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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.

THX

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NEM and THX

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

The idea behind NEM and THX 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.