Correlation Between Invictus Energy and NXT Energy

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

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

Diversification Opportunities for Invictus Energy and NXT Energy

0.43

Correlation Coefficient

Invictus Energy  NXT Energy

Very weak diversification

The 3 months correlation between Invictus and NXT is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Invictus Energy Limited 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 Invictus Energy 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 Invictus Energy Limited 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 Invictus Energy i.e., Invictus Energy and NXT Energy go up and down completely randomly.

Pair Corralation between Invictus Energy and NXT Energy

Assuming the 90 days horizon Invictus Energy is expected to generate 2.71 times less return on investment than NXT Energy. But when comparing it to its historical volatility, Invictus Energy Limited is 1.18 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 0.03 of returns per unit of risk over similar time horizon. If you would invest  18.00  in NXT Energy Solutions on October 4, 2024 and sell it today you would lose (7.00) from holding NXT Energy Solutions or give up 38.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Invictus Energy Limited  vs.  NXT Energy Solutions

Invictus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invictus Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invictus Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NXT Energy Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Invictus Energy and NXT Energy

The main advantage of trading using opposite Invictus Energy and NXT Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invictus Energy 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 Invictus Energy Limited 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.

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.