Correlation Between Nextmart and Emergent Health

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

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

Diversification Opportunities for Nextmart and Emergent Health

0.14

Correlation Coefficient

Nextmart  Emergent Health

Average diversification

The 3 months correlation between Nextmart and Emergent is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and Emergent Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emergent Health Corp 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 Emergent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emergent Health Corp has no effect on the direction of Nextmart i.e., Nextmart and Emergent Health go up and down completely randomly.

Pair Corralation between Nextmart and Emergent Health

Given the investment horizon of 90 days Nextmart is expected to under-perform the Emergent Health. In addition to that, Nextmart is 3.29 times more volatile than Emergent Health Corp. It trades about -0.22 of its total potential returns per unit of risk. Emergent Health Corp is currently generating about -0.11 per unit of volatility. If you would invest  0.10  in Emergent Health Corp on September 22, 2024 and sell it today you would lose (0.02) from holding Emergent Health Corp or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Nextmart  vs.  Emergent Health Corp

Nextmart

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 7 (%) 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.

Emergent Health Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emergent Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Nextmart and Emergent Health

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

The idea behind Nextmart and Emergent Health Corp 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.