Correlation Between Westport Fuel and Nextracker

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

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

Diversification Opportunities for Westport Fuel and Nextracker

0.39

Correlation Coefficient

Westport Fuel  Nextracker

Weak diversification

The 3 months correlation between Westport and Nextracker is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Westport Fuel Systems 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 Westport Fuel 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 Westport Fuel Systems 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 Westport Fuel i.e., Westport Fuel and Nextracker go up and down completely randomly.

Pair Corralation between Westport Fuel and Nextracker

Given the investment horizon of 90 days Westport Fuel Systems is expected to generate 1.04 times more return on investment than Nextracker. However, Westport Fuel is 1.04 times more volatile than Nextracker Class A. It trades about 0.03 of its potential returns per unit of risk. Nextracker Class A is currently generating about -0.24 per unit of risk. If you would invest  417.00  in Westport Fuel Systems on December 5, 2024 and sell it today you would earn a total of  3.00  from holding Westport Fuel Systems or generate 0.72% return on investment over 90 days.

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

Westport Fuel Systems  vs.  Nextracker Class A

Westport Fuel Systems

Risk-Adjusted Performance

Very Weak

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

Nextracker Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextracker Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Nextracker unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westport Fuel and Nextracker

The main advantage of trading using opposite Westport Fuel and Nextracker positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westport Fuel 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 Westport Fuel Systems 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.