Correlation Between Shoals Technologies and Nextracker

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

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

Diversification Opportunities for Shoals Technologies and Nextracker

0.2

Correlation Coefficient

Shoals Technologies  Nextracker

Modest diversification

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

Pair Corralation between Shoals Technologies and Nextracker

Given the investment horizon of 90 days Shoals Technologies Group is expected to generate 1.3 times more return on investment than Nextracker. However, Shoals Technologies is 1.3 times more volatile than Nextracker Class A. It trades about -0.02 of its potential returns per unit of risk. Nextracker Class A is currently generating about -0.05 per unit of risk. 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

Shoals Technologies Group  vs.  Nextracker Class A

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.

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.

Pair Trading with Shoals Technologies and Nextracker

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

The idea behind Shoals Technologies Group and Nextracker Class A 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.