Correlation Between Marchex and Nextmart

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Can any of the company-specific risk be diversified away by investing in both Marchex and Nextmart 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 Marchex and Nextmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marchex and Nextmart, you can compare the effects of market volatilities on Marchex and Nextmart 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 Marchex with a short position of Nextmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marchex and Nextmart.

Diversification Opportunities for Marchex and Nextmart

MarchexNextmartDiversified AwayMarchexNextmartDiversified Away100%
-0.23
  Correlation Coefficient

Very good diversification

The 3 months correlation between Marchex and Nextmart is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Marchex and Nextmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextmart and Marchex 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 Marchex are associated (or correlated) with Nextmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextmart has no effect on the direction of Marchex i.e., Marchex and Nextmart go up and down completely randomly.

Pair Corralation between Marchex and Nextmart

Given the investment horizon of 90 days Marchex is expected to generate 32.77 times less return on investment than Nextmart. But when comparing it to its historical volatility, Marchex is 16.65 times less risky than Nextmart. It trades about 0.05 of its potential returns per unit of risk. Nextmart is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.14  in Nextmart on October 11, 2024 and sell it today you would lose (0.08) from holding Nextmart or give up 57.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy96.83%
ValuesDaily Returns

Marchex  vs.  Nextmart

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -50050100150
JavaScript chart by amCharts 3.21.15MCHX NXMR
       Timeline  
Marchex 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Marchex are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical indicators, Marchex showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan1.61.71.81.922.12.22.32.4
Nextmart 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan0.000100000000000000060.00020.00040.00060.00080.0010.00120.0014

Marchex and Nextmart Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-12.42-9.3-6.19-3.070.05353.216.429.5812.79 0.0050.0100.0150.0200.025
JavaScript chart by amCharts 3.21.15MCHX NXMR
       Returns  

Pair Trading with Marchex and Nextmart

The main advantage of trading using opposite Marchex and Nextmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marchex position performs unexpectedly, Nextmart 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 Nextmart will offset losses from the drop in Nextmart's long position.
The idea behind Marchex and Nextmart 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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