Correlation Between B Communications and Nextgen

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

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

Diversification Opportunities for B Communications and Nextgen

-0.47

Correlation Coefficient

B Communications  Nextgen

Very good diversification

The 3 months correlation between BCOM and Nextgen is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding B Communications and Nextgen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextgen and B Communications 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 B Communications are associated (or correlated) with Nextgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextgen has no effect on the direction of B Communications i.e., B Communications and Nextgen go up and down completely randomly.

Pair Corralation between B Communications and Nextgen

Assuming the 90 days trading horizon B Communications is expected to generate 1.36 times less return on investment than Nextgen. But when comparing it to its historical volatility, B Communications is 3.38 times less risky than Nextgen. It trades about 0.35 of its potential returns per unit of risk. Nextgen is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,200  in Nextgen on October 21, 2024 and sell it today you would earn a total of  920.00  from holding Nextgen or generate 14.84% return on investment over 90 days.

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

B Communications  vs.  Nextgen

B Communications

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in B Communications are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, B Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Nextgen

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nextgen are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nextgen may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with B Communications and Nextgen

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

The idea behind B Communications and Nextgen 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.