Correlation Between NXT Energy and MRC Global

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

Diversification Opportunities for NXT Energy and MRC Global

-0.34

Correlation Coefficient

NXT Energy  MRC Global

Very good diversification

The 3 months correlation between NXT and MRC is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and MRC Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRC Global 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 MRC Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRC Global has no effect on the direction of NXT Energy i.e., NXT Energy and MRC Global go up and down completely randomly.

Pair Corralation between NXT Energy and MRC Global

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 5.48 times more return on investment than MRC Global. However, NXT Energy is 5.48 times more volatile than MRC Global. It trades about 0.03 of its potential returns per unit of risk. MRC Global is currently generating about 0.1 per unit of risk. If you would invest  17.00  in NXT Energy Solutions on September 5, 2024 and sell it today you would lose (4.00) from holding NXT Energy Solutions or give up 23.53% of portfolio value over 90 days.

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

NXT Energy Solutions  vs.  MRC Global

NXT Energy Solutions

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 2 (%) 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.

MRC Global

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with NXT Energy and MRC Global

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

The idea behind NXT Energy Solutions and MRC Global 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 Commodity Directory module to find actively traded commodities issued by global exchanges.