Correlation Between NXT Energy and Sims

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

Diversification Opportunities for NXT Energy and Sims

0.25

Correlation Coefficient

NXT Energy  Sims

Modest diversification

The 3 months correlation between NXT and Sims is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Sims Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Limited 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 Sims. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Limited has no effect on the direction of NXT Energy i.e., NXT Energy and Sims go up and down completely randomly.

Pair Corralation between NXT Energy and Sims

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 4.49 times more return on investment than Sims. However, NXT Energy is 4.49 times more volatile than Sims Limited. It trades about 0.05 of its potential returns per unit of risk. Sims Limited is currently generating about -0.01 per unit of risk. If you would invest  14.00  in NXT Energy Solutions on October 22, 2024 and sell it today you would earn a total of  3.00  from holding NXT Energy Solutions or generate 21.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.32%
Values	Daily Returns

NXT Energy Solutions  vs.  Sims Limited

NXT Energy Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 6 (%) 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.

Sims Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sims may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NXT Energy and Sims

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

The idea behind NXT Energy Solutions and Sims Limited 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.