Correlation Between NCS Multistage and NXT Energy

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

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

Diversification Opportunities for NCS Multistage and NXT Energy

0.35

Correlation Coefficient

NCS Multistage  NXT Energy

Weak diversification

The 3 months correlation between NCS and NXT is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding NCS Multistage Holdings 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 NCS Multistage 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 NCS Multistage Holdings 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 NCS Multistage i.e., NCS Multistage and NXT Energy go up and down completely randomly.

Pair Corralation between NCS Multistage and NXT Energy

Given the investment horizon of 90 days NCS Multistage Holdings is expected to generate 0.64 times more return on investment than NXT Energy. However, NCS Multistage Holdings is 1.56 times less risky than NXT Energy. It trades about 0.2 of its potential returns per unit of risk. NXT Energy Solutions is currently generating about 0.12 per unit of risk. If you would invest  2,785  in NCS Multistage Holdings on December 26, 2024 and sell it today you would earn a total of  825.00  from holding NCS Multistage Holdings or generate 29.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

NCS Multistage Holdings  vs.  NXT Energy Solutions

NCS Multistage Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NCS Multistage Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, NCS Multistage displayed solid returns over the last few months and may actually be approaching a breakup point.

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 NCS Multistage and NXT Energy

The main advantage of trading using opposite NCS Multistage and NXT Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NCS Multistage 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 NCS Multistage Holdings 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.