Correlation Between Bri Chem and NXT Energy

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

By analyzing existing cross correlation between Bri Chem Corp and NXT Energy Solutions, you can compare the effects of market volatilities on Bri Chem and NXT Energy 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 Bri Chem with a short position of NXT Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bri Chem and NXT Energy.

Diversification Opportunities for Bri Chem and NXT Energy

0.54

Correlation Coefficient

Bri Chem  NXT Energy

Very weak diversification

The 3 months correlation between Bri and NXT is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bri Chem Corp and NXT Energy Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT Energy Solutions and Bri Chem 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 Bri Chem Corp are associated (or correlated) with NXT Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXT Energy Solutions has no effect on the direction of Bri Chem i.e., Bri Chem and NXT Energy go up and down completely randomly.

Pair Corralation between Bri Chem and NXT Energy

Assuming the 90 days horizon Bri Chem is expected to generate 4.11 times less return on investment than NXT Energy. But when comparing it to its historical volatility, Bri Chem Corp is 1.67 times less risky than NXT Energy. It trades about 0.02 of its potential returns per unit of risk. NXT Energy Solutions is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  15.00  in NXT Energy Solutions on September 4, 2024 and sell it today you would earn a total of  1.00  from holding NXT Energy Solutions or generate 6.67% return on investment over 90 days.

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

Bri Chem Corp  vs.  NXT Energy Solutions

Bri Chem Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bri Chem Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Bri Chem is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

NXT Energy Solutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, NXT Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bri Chem and NXT Energy

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

The idea behind Bri Chem Corp and NXT Energy Solutions 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.