Correlation Between NXT Energy and Texas Gulf

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

Diversification Opportunities for NXT Energy and Texas Gulf

0.04

Correlation Coefficient

NXT Energy  Texas Gulf

Significant diversification

The 3 months correlation between NXT and Texas is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and Texas Gulf Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Gulf Energy 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 Texas Gulf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Gulf Energy has no effect on the direction of NXT Energy i.e., NXT Energy and Texas Gulf go up and down completely randomly.

Pair Corralation between NXT Energy and Texas Gulf

Assuming the 90 days horizon NXT Energy Solutions is expected to generate 4.81 times more return on investment than Texas Gulf. However, NXT Energy is 4.81 times more volatile than Texas Gulf Energy. It trades about 0.01 of its potential returns per unit of risk. Texas Gulf Energy is currently generating about -0.11 per unit of risk. If you would invest  14.00  in NXT Energy Solutions on September 26, 2024 and sell it today you would lose (2.00) from holding NXT Energy Solutions or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.35%
Values	Daily Returns

NXT Energy Solutions  vs.  Texas Gulf Energy

NXT Energy Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NXT Energy Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Texas Gulf Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Gulf Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Texas Gulf is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NXT Energy and Texas Gulf

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

The idea behind NXT Energy Solutions and Texas Gulf Energy 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..