Correlation Between NXT Energy and Obayashi

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

Diversification Opportunities for NXT Energy and Obayashi

-0.43

Correlation Coefficient

NXT Energy  Obayashi

Very good diversification

The 3 months correlation between NXT and Obayashi is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Obayashi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obayashi 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 Obayashi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obayashi has no effect on the direction of NXT Energy i.e., NXT Energy and Obayashi go up and down completely randomly.

Pair Corralation between NXT Energy and Obayashi

Assuming the 90 days horizon NXT Energy Solutions is expected to under-perform the Obayashi. In addition to that, NXT Energy is 2.99 times more volatile than Obayashi. It trades about -0.01 of its total potential returns per unit of risk. Obayashi is currently generating about 0.13 per unit of volatility. If you would invest  1,134  in Obayashi on October 1, 2024 and sell it today you would earn a total of  186.00  from holding Obayashi or generate 16.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.35%
Values	Daily Returns

NXT Energy Solutions  vs.  Obayashi

NXT Energy Solutions

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, NXT Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Obayashi

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obayashi are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, Obayashi reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT Energy and Obayashi

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

The idea behind NXT Energy Solutions and Obayashi 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.