Correlation Between NXT Energy and Dawson Geophysical

Can any of the company-specific risk be diversified away by investing in both NXT Energy and Dawson Geophysical 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 Dawson Geophysical 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 Dawson Geophysical, you can compare the effects of market volatilities on NXT Energy and Dawson Geophysical 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 Dawson Geophysical. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXT Energy and Dawson Geophysical.

Diversification Opportunities for NXT Energy and Dawson Geophysical

-0.11

Correlation Coefficient

NXT Energy  Dawson Geophysical

Good diversification

The 3 months correlation between NXT and Dawson is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Dawson Geophysical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawson Geophysical 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 Dawson Geophysical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawson Geophysical has no effect on the direction of NXT Energy i.e., NXT Energy and Dawson Geophysical go up and down completely randomly.

Pair Corralation between NXT Energy and Dawson Geophysical

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 2.48 times more return on investment than Dawson Geophysical. However, NXT Energy is 2.48 times more volatile than Dawson Geophysical. It trades about 0.04 of its potential returns per unit of risk. Dawson Geophysical is currently generating about -0.01 per unit of risk. If you would invest  16.00  in NXT Energy Solutions on November 29, 2024 and sell it today you would earn a total of  0.00  from holding NXT Energy Solutions or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

NXT Energy Solutions  vs.  Dawson Geophysical

NXT Energy Solutions

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 3 (%) 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.

Dawson Geophysical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dawson Geophysical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dawson Geophysical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NXT Energy and Dawson Geophysical

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

The idea behind NXT Energy Solutions and Dawson Geophysical 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.