Correlation Between Next Generation and Energy Revenue

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

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

Diversification Opportunities for Next Generation and Energy Revenue

0.52

Correlation Coefficient

Next Generation  Energy Revenue

Very weak diversification

The 3 months correlation between Next and Energy is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Next Generation Management and Energy Revenue Amer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Revenue Amer and Next 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 Next Generation Management are associated (or correlated) with Energy Revenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Revenue Amer has no effect on the direction of Next Generation i.e., Next Generation and Energy Revenue go up and down completely randomly.

Pair Corralation between Next Generation and Energy Revenue

Given the investment horizon of 90 days Next Generation is expected to generate 1.69 times less return on investment than Energy Revenue. But when comparing it to its historical volatility, Next Generation Management is 1.08 times less risky than Energy Revenue. It trades about 0.11 of its potential returns per unit of risk. Energy Revenue Amer is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.72  in Energy Revenue Amer on September 13, 2024 and sell it today you would earn a total of  2.28  from holding Energy Revenue Amer or generate 316.67% return on investment over 90 days.

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

Next Generation Management  vs.  Energy Revenue Amer

Next Generation Mana

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Next Generation Management are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Next Generation exhibited solid returns over the last few months and may actually be approaching a breakup point.

Energy Revenue Amer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Revenue Amer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Energy Revenue displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Next Generation and Energy Revenue

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

The idea behind Next Generation Management and Energy Revenue Amer 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.