Correlation Between NEM and True USD

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

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

Diversification Opportunities for NEM and True USD

0.58

Correlation Coefficient

NEM  True USD

Very weak diversification

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

Pair Corralation between NEM and True USD

Assuming the 90 days trading horizon NEM is expected to generate 8.62 times more return on investment than True USD. However, NEM is 8.62 times more volatile than True USD. It trades about 0.01 of its potential returns per unit of risk. True USD is currently generating about 0.06 per unit of risk. If you would invest  3.83  in NEM on January 19, 2024 and sell it today you would lose (0.28) from holding NEM or give up 7.31% of portfolio value over 90 days.

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

NEM  vs.  True USD

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 latest unsteady performance, the Crypto's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for NEM shareholders.

True USD

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in True USD are ranked lower than 1 (%) 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.

Pair Trading with NEM and True USD

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

The idea behind NEM and True USD 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.