Correlation Between New Generation and Xtra Energy

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

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

Diversification Opportunities for New Generation and Xtra Energy

0.21

Correlation Coefficient

New Generation  Xtra Energy

Modest diversification

The 3 months correlation between New and Xtra is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and Xtra Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtra Energy Corp and New Generation 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 New Generation Consumer are associated (or correlated) with Xtra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtra Energy Corp has no effect on the direction of New Generation i.e., New Generation and Xtra Energy go up and down completely randomly.

Pair Corralation between New Generation and Xtra Energy

Given the investment horizon of 90 days New Generation Consumer is expected to generate 1.96 times more return on investment than Xtra Energy. However, New Generation is 1.96 times more volatile than Xtra Energy Corp. It trades about 0.01 of its potential returns per unit of risk. Xtra Energy Corp is currently generating about -0.02 per unit of risk. If you would invest  0.07  in New Generation Consumer on December 26, 2024 and sell it today you would lose (0.03) from holding New Generation Consumer or give up 42.86% of portfolio value over 90 days.

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

New Generation Consumer  vs.  Xtra Energy Corp

New Generation Consumer

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.

Xtra Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtra Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with New Generation and Xtra Energy

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

The idea behind New Generation Consumer and Xtra Energy Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.