Correlation Between NXG NextGen and Japan Smaller

Can any of the company-specific risk be diversified away by investing in both NXG NextGen and Japan Smaller 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 NXG NextGen and Japan Smaller into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NXG NextGen Infrastructure and Japan Smaller Capitalization, you can compare the effects of market volatilities on NXG NextGen and Japan Smaller 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 NXG NextGen with a short position of Japan Smaller. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXG NextGen and Japan Smaller.

Diversification Opportunities for NXG NextGen and Japan Smaller

0.36

Correlation Coefficient

NXG NextGen  Japan Smaller

Weak diversification

The 3 months correlation between NXG and Japan is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NXG NextGen Infrastructure and Japan Smaller Capitalization in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Smaller Capita and NXG NextGen 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 NXG NextGen Infrastructure are associated (or correlated) with Japan Smaller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Smaller Capita has no effect on the direction of NXG NextGen i.e., NXG NextGen and Japan Smaller go up and down completely randomly.

Pair Corralation between NXG NextGen and Japan Smaller

Considering the 90-day investment horizon NXG NextGen Infrastructure is expected to generate 2.28 times more return on investment than Japan Smaller. However, NXG NextGen is 2.28 times more volatile than Japan Smaller Capitalization. It trades about 0.1 of its potential returns per unit of risk. Japan Smaller Capitalization is currently generating about 0.17 per unit of risk. If you would invest  4,280  in NXG NextGen Infrastructure on December 26, 2024 and sell it today you would earn a total of  541.00  from holding NXG NextGen Infrastructure or generate 12.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

NXG NextGen Infrastructure  vs.  Japan Smaller Capitalization

NXG NextGen Infrastr

Risk-Adjusted Performance

OK

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

Japan Smaller Capita

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Smaller Capitalization are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly fragile basic indicators, Japan Smaller may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NXG NextGen and Japan Smaller

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

The idea behind NXG NextGen Infrastructure and Japan Smaller Capitalization 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.