Correlation Between NXT Energy and Profire Ene

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

Diversification Opportunities for NXT Energy and Profire Ene

-0.57

Correlation Coefficient

NXT Energy  Profire Ene

Excellent diversification

The 3 months correlation between NXT and Profire is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Profire Ene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profire Ene 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 Profire Ene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profire Ene has no effect on the direction of NXT Energy i.e., NXT Energy and Profire Ene go up and down completely randomly.

Pair Corralation between NXT Energy and Profire Ene

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 58.67 times more return on investment than Profire Ene. However, NXT Energy is 58.67 times more volatile than Profire Ene. It trades about 0.03 of its potential returns per unit of risk. Profire Ene is currently generating about 0.17 per unit of risk. If you would invest  14.00  in NXT Energy Solutions on September 5, 2024 and sell it today you would lose (1.00) from holding NXT Energy Solutions or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

NXT Energy Solutions  vs.  Profire Ene

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.

Profire Ene

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Profire Ene are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal forward indicators, Profire Ene exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT Energy and Profire Ene

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

The idea behind NXT Energy Solutions and Profire Ene 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.