Correlation Between Nextmart and China Oilfield

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

By analyzing existing cross correlation between Nextmart and China Oilfield Services, you can compare the effects of market volatilities on Nextmart and China Oilfield 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 China Oilfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextmart and China Oilfield.

Diversification Opportunities for Nextmart and China Oilfield

0.25

Correlation Coefficient

Nextmart  China Oilfield

Modest diversification

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

Pair Corralation between Nextmart and China Oilfield

Given the investment horizon of 90 days Nextmart is expected to generate 28.7 times more return on investment than China Oilfield. However, Nextmart is 28.7 times more volatile than China Oilfield Services. It trades about 0.09 of its potential returns per unit of risk. China Oilfield Services is currently generating about -0.16 per unit of risk. If you would invest  1.10  in Nextmart on October 4, 2024 and sell it today you would lose (1.04) from holding Nextmart or give up 94.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	26.36%
Values	Daily Returns

Nextmart  vs.  China Oilfield Services

Nextmart

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

China Oilfield Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Oilfield Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, China Oilfield is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nextmart and China Oilfield

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

The idea behind Nextmart and China Oilfield Services 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 CEOs Directory module to screen CEOs from public companies around the world.