Correlation Between North American and Nextier Oilfield

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

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

Diversification Opportunities for North American and Nextier Oilfield

0.71

Correlation Coefficient

North American  Nextier Oilfield

Poor diversification

The 3 months correlation between North and Nextier is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Nextier Oilfield Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextier Oilfield Sol and North American 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 North American Construction are associated (or correlated) with Nextier Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextier Oilfield Sol has no effect on the direction of North American i.e., North American and Nextier Oilfield go up and down completely randomly.

Pair Corralation between North American and Nextier Oilfield

Considering the 90-day investment horizon North American is expected to generate 1.74 times less return on investment than Nextier Oilfield. But when comparing it to its historical volatility, North American Construction is 1.49 times less risky than Nextier Oilfield. It trades about 0.05 of its potential returns per unit of risk. Nextier Oilfield Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  919.00  in Nextier Oilfield Solutions on September 19, 2024 and sell it today you would earn a total of  216.00  from holding Nextier Oilfield Solutions or generate 23.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	28.63%
Values	Daily Returns

North American Construction  vs.  Nextier Oilfield Solutions

North American Const

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nextier Oilfield Sol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextier Oilfield Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Nextier Oilfield is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North American and Nextier Oilfield

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

The idea behind North American Construction and Nextier Oilfield 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.