Correlation Between Nextmart and Blue Earth

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

By analyzing existing cross correlation between Nextmart and Blue Earth Resources, you can compare the effects of market volatilities on Nextmart and Blue Earth 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 Nextmart with a short position of Blue Earth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextmart and Blue Earth.

Diversification Opportunities for Nextmart and Blue Earth

-0.26

Correlation Coefficient

Nextmart  Blue Earth

Very good diversification

The 3 months correlation between Nextmart and Blue is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and Blue Earth Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Earth Resources and Nextmart 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 Nextmart are associated (or correlated) with Blue Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Earth Resources has no effect on the direction of Nextmart i.e., Nextmart and Blue Earth go up and down completely randomly.

Pair Corralation between Nextmart and Blue Earth

Given the investment horizon of 90 days Nextmart is expected to generate 6.5 times more return on investment than Blue Earth. However, Nextmart is 6.5 times more volatile than Blue Earth Resources. It trades about 0.18 of its potential returns per unit of risk. Blue Earth Resources is currently generating about 0.37 per unit of risk. If you would invest  0.04  in Nextmart on October 11, 2024 and sell it today you would earn a total of  0.02  from holding Nextmart or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Nextmart  vs.  Blue Earth Resources

Nextmart

Risk-Adjusted Performance

8 of 100

OK

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

Blue Earth Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Earth Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Blue Earth demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextmart and Blue Earth

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

The idea behind Nextmart and Blue Earth Resources 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.