Correlation Between LRN and NXS

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

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

Diversification Opportunities for LRN and NXS

0.69

Correlation Coefficient

LRN  NXS

Poor diversification

The 3 months correlation between LRN and NXS is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding LRN and NXS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXS and LRN 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 LRN are associated (or correlated) with NXS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXS has no effect on the direction of LRN i.e., LRN and NXS go up and down completely randomly.

Pair Corralation between LRN and NXS

Assuming the 90 days trading horizon LRN is expected to generate 3.66 times more return on investment than NXS. However, LRN is 3.66 times more volatile than NXS. It trades about 0.0 of its potential returns per unit of risk. NXS is currently generating about -0.01 per unit of risk. If you would invest  0.24  in LRN on November 27, 2024 and sell it today you would lose (0.07) from holding LRN or give up 30.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

LRN  vs.  NXS

LRN

Risk-Adjusted Performance

Very Weak

Over the last 90 days LRN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LRN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NXS

Risk-Adjusted Performance

Very Weak

Over the last 90 days NXS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, NXS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LRN and NXS

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

The idea behind LRN and NXS 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.