Correlation Between Flare and NXS
Can any of the company-specific risk be diversified away by investing in both Flare and NXS 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 Flare and NXS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Flare and NXS, you can compare the effects of market volatilities on Flare and NXS 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 Flare with a short position of NXS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flare and NXS.
Diversification Opportunities for Flare and NXS
Very poor diversification
The 3 months correlation between Flare and NXS is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Flare and NXS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXS and Flare 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 Flare are associated (or correlated) with NXS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXS has no effect on the direction of Flare i.e., Flare and NXS go up and down completely randomly.
Pair Corralation between Flare and NXS
Assuming the 90 days trading horizon Flare is expected to under-perform the NXS. In addition to that, Flare is 2.44 times more volatile than NXS. It trades about -0.05 of its total potential returns per unit of risk. NXS is currently generating about 0.09 per unit of volatility. If you would invest 24.00 in NXS on November 4, 2024 and sell it today you would earn a total of 1.00 from holding NXS or generate 4.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Flare vs. NXS
Performance |
| Timeline |
| Flare |
| NXS |
Flare and NXS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Flare and NXS
The main advantage of trading using opposite Flare and NXS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flare position performs unexpectedly, NXS 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 NXS will offset losses from the drop in NXS's long position.The idea behind Flare and NXS 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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