Correlation Between NXT and SC

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Can any of the company-specific risk be diversified away by investing in both NXT and SC 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 SC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NXT and SC, you can compare the effects of market volatilities on NXT and SC 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 SC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXT and SC.

Diversification Opportunities for NXT and SC

0.85
  Correlation Coefficient
 NXT
 SC

Very poor diversification

The 3 months correlation between NXT and SC is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NXT and SC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC 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 SC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC has no effect on the direction of NXT i.e., NXT and SC go up and down completely randomly.

Pair Corralation between NXT and SC

Assuming the 90 days trading horizon NXT is expected to generate 2.83 times more return on investment than SC. However, NXT is 2.83 times more volatile than SC. It trades about 0.04 of its potential returns per unit of risk. SC is currently generating about 0.04 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 Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

NXT  vs.  SC

 Performance 
       Timeline  
NXT 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
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.
SC 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SC exhibited solid returns over the last few months and may actually be approaching a breakup point.

NXT and SC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NXT and SC

The main advantage of trading using opposite NXT and SC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXT position performs unexpectedly, SC 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 SC will offset losses from the drop in SC's long position.
The idea behind NXT and SC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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