Correlation Between Dawson Geophysical and NXT Energy

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

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

Diversification Opportunities for Dawson Geophysical and NXT Energy

-0.09

Correlation Coefficient

Dawson Geophysical  NXT Energy

Good diversification

The 3 months correlation between Dawson and NXT is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dawson Geophysical 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 Dawson Geophysical 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 Dawson Geophysical 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 Dawson Geophysical i.e., Dawson Geophysical and NXT Energy go up and down completely randomly.

Pair Corralation between Dawson Geophysical and NXT Energy

Given the investment horizon of 90 days Dawson Geophysical is expected to generate 58.66 times less return on investment than NXT Energy. But when comparing it to its historical volatility, Dawson Geophysical is 2.67 times less risky than NXT Energy. It trades about 0.01 of its potential returns per unit of risk. NXT Energy Solutions is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  12.00  in NXT Energy Solutions on December 28, 2024 and sell it today you would earn a total of  7.00  from holding NXT Energy Solutions or generate 58.33% return on investment over 90 days.

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

Dawson Geophysical  vs.  NXT Energy Solutions

Dawson Geophysical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dawson Geophysical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dawson Geophysical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

NXT Energy Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 9 (%) 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 Dawson Geophysical and NXT Energy

The main advantage of trading using opposite Dawson Geophysical and NXT Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dawson Geophysical 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 Dawson Geophysical 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.