Correlation Between Xtra Energy and CLST Holdings

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

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

Diversification Opportunities for Xtra Energy and CLST Holdings

-0.26

Correlation Coefficient

Xtra Energy  CLST Holdings

Very good diversification

The 3 months correlation between Xtra and CLST is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Xtra Energy Corp and CLST Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLST Holdings and Xtra Energy 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 Xtra Energy Corp are associated (or correlated) with CLST Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLST Holdings has no effect on the direction of Xtra Energy i.e., Xtra Energy and CLST Holdings go up and down completely randomly.

Pair Corralation between Xtra Energy and CLST Holdings

Given the investment horizon of 90 days Xtra Energy is expected to generate 8.54 times less return on investment than CLST Holdings. But when comparing it to its historical volatility, Xtra Energy Corp is 4.01 times less risky than CLST Holdings. It trades about 0.05 of its potential returns per unit of risk. CLST Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3.21  in CLST Holdings on September 18, 2024 and sell it today you would lose (2.50) from holding CLST Holdings or give up 77.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.18%
Values	Daily Returns

Xtra Energy Corp  vs.  CLST Holdings

Xtra Energy Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtra Energy Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Xtra Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

CLST Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CLST Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, CLST Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtra Energy and CLST Holdings

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

The idea behind Xtra Energy Corp and CLST Holdings 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.