Correlation Between Nextracker and Shoals Technologies

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

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

Diversification Opportunities for Nextracker and Shoals Technologies

0.2

Correlation Coefficient

Nextracker  Shoals Technologies

Modest diversification

The 3 months correlation between Nextracker and Shoals is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Nextracker Class A and Shoals Technologies Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoals Technologies and Nextracker 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 Nextracker Class A are associated (or correlated) with Shoals Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoals Technologies has no effect on the direction of Nextracker i.e., Nextracker and Shoals Technologies go up and down completely randomly.

Pair Corralation between Nextracker and Shoals Technologies

Considering the 90-day investment horizon Nextracker Class A is expected to under-perform the Shoals Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Nextracker Class A is 1.3 times less risky than Shoals Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The Shoals Technologies Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  456.00  in Shoals Technologies Group on September 16, 2024 and sell it today you would lose (15.00) from holding Shoals Technologies Group or give up 3.29% of portfolio value over 90 days.

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

Nextracker Class A  vs.  Shoals Technologies Group

Nextracker Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextracker Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nextracker is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Shoals Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shoals Technologies Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Nextracker and Shoals Technologies

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

The idea behind Nextracker Class A and Shoals Technologies Group 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.