Correlation Between ITM Power and Next Hydrogen

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

By analyzing existing cross correlation between ITM Power Plc and Next Hydrogen Solutions, you can compare the effects of market volatilities on ITM Power and Next Hydrogen 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 ITM Power with a short position of Next Hydrogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITM Power and Next Hydrogen.

Diversification Opportunities for ITM Power and Next Hydrogen

0.01

Correlation Coefficient

ITM Power  Next Hydrogen

Significant diversification

The 3 months correlation between ITM and Next is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding ITM Power Plc and Next Hydrogen Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Hydrogen Solutions and ITM Power 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 ITM Power Plc are associated (or correlated) with Next Hydrogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Hydrogen Solutions has no effect on the direction of ITM Power i.e., ITM Power and Next Hydrogen go up and down completely randomly.

Pair Corralation between ITM Power and Next Hydrogen

Assuming the 90 days horizon ITM Power Plc is expected to under-perform the Next Hydrogen. But the pink sheet apears to be less risky and, when comparing its historical volatility, ITM Power Plc is 5.11 times less risky than Next Hydrogen. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Next Hydrogen Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Next Hydrogen Solutions on September 2, 2024 and sell it today you would lose (16.00) from holding Next Hydrogen Solutions or give up 34.78% of portfolio value over 90 days.

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

ITM Power Plc  vs.  Next Hydrogen Solutions

ITM Power Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITM Power Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Next Hydrogen Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Next Hydrogen Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Next Hydrogen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITM Power and Next Hydrogen

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

The idea behind ITM Power Plc and Next Hydrogen 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.