Correlation Between CEA Industries and Nikola Corp

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

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

Diversification Opportunities for CEA Industries and Nikola Corp

0.18

Correlation Coefficient

CEA Industries  Nikola Corp

Average diversification

The 3 months correlation between CEA and Nikola is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding CEA Industries Warrant and Nikola Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nikola Corp and CEA Industries 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 CEA Industries Warrant are associated (or correlated) with Nikola Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nikola Corp has no effect on the direction of CEA Industries i.e., CEA Industries and Nikola Corp go up and down completely randomly.

Pair Corralation between CEA Industries and Nikola Corp

Assuming the 90 days horizon CEA Industries Warrant is expected to generate 18.06 times more return on investment than Nikola Corp. However, CEA Industries is 18.06 times more volatile than Nikola Corp. It trades about 0.29 of its potential returns per unit of risk. Nikola Corp is currently generating about -0.22 per unit of risk. If you would invest  0.62  in CEA Industries Warrant on July 19, 2024 and sell it today you would earn a total of  0.45  from holding CEA Industries Warrant or generate 72.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	39.13%
Values	Daily Returns

CEA Industries Warrant  vs.  Nikola Corp

CEA Industries Warrant

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days CEA Industries Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Nikola Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nikola Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in November 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with CEA Industries and Nikola Corp

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

The idea behind CEA Industries Warrant and Nikola Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.