Correlation Between NXT Energy and Natural Gas

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

Diversification Opportunities for NXT Energy and Natural Gas

-0.47

Correlation Coefficient

NXT Energy  Natural Gas

Very good diversification

The 3 months correlation between NXT and Natural is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of NXT Energy i.e., NXT Energy and Natural Gas go up and down completely randomly.

Pair Corralation between NXT Energy and Natural Gas

Assuming the 90 days horizon NXT Energy is expected to generate 1.5 times less return on investment than Natural Gas. In addition to that, NXT Energy is 5.03 times more volatile than Natural Gas Services. It trades about 0.03 of its total potential returns per unit of risk. Natural Gas Services is currently generating about 0.23 per unit of volatility. If you would invest  1,925  in Natural Gas Services on September 5, 2024 and sell it today you would earn a total of  835.00  from holding Natural Gas Services or generate 43.38% return on investment over 90 days.

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

NXT Energy Solutions  vs.  Natural Gas Services

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.

Natural Gas Services

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT Energy and Natural Gas

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

The idea behind NXT Energy Solutions and Natural Gas Services 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..