Correlation Between NXT and KEY

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

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

Diversification Opportunities for NXT and KEY

-0.7

Correlation Coefficient

NXT  KEY

Excellent diversification

The 3 months correlation between NXT and KEY is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding NXT and KEY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEY and NXT 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 are associated (or correlated) with KEY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEY has no effect on the direction of NXT i.e., NXT and KEY go up and down completely randomly.

Pair Corralation between NXT and KEY

Assuming the 90 days trading horizon NXT is expected to generate 2.17 times more return on investment than KEY. However, NXT is 2.17 times more volatile than KEY. It trades about 0.04 of its potential returns per unit of risk. KEY is currently generating about -0.12 per unit of risk. If you would invest  0.14  in NXT on September 1, 2024 and sell it today you would lose (0.05) from holding NXT or give up 33.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

NXT  vs.  KEY

NXT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NXT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NXT exhibited solid returns over the last few months and may actually be approaching a breakup point.

KEY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KEY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for KEY shareholders.

Pair Trading with NXT and KEY

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

The idea behind NXT and KEY 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.