Correlation Between NXT Energy and Bri Chem

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

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

Diversification Opportunities for NXT Energy and Bri Chem

0.0

Correlation Coefficient

NXT Energy  Bri Chem

Pay attention - limited upside

The 3 months correlation between NXT and Bri is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Bri Chem Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bri Chem Corp and NXT Energy 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 NXT Energy Solutions are associated (or correlated) with Bri Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bri Chem Corp has no effect on the direction of NXT Energy i.e., NXT Energy and Bri Chem go up and down completely randomly.

Pair Corralation between NXT Energy and Bri Chem

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 1.26 times more return on investment than Bri Chem. However, NXT Energy is 1.26 times more volatile than Bri Chem Corp. It trades about 0.12 of its potential returns per unit of risk. Bri Chem Corp is currently generating about 0.04 per unit of risk. If you would invest  12.00  in NXT Energy Solutions on December 26, 2024 and sell it today you would earn a total of  7.00  from holding NXT Energy Solutions or generate 58.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NXT Energy Solutions  vs.  Bri Chem Corp

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.

Bri Chem Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bri Chem Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Bri Chem reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT Energy and Bri Chem

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

The idea behind NXT Energy Solutions and Bri Chem 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.