Correlation Between NXT and DGB
Can any of the company-specific risk be diversified away by investing in both NXT and DGB 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 NXT and DGB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NXT and DGB, you can compare the effects of market volatilities on NXT and DGB 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 NXT with a short position of DGB. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXT and DGB.
Diversification Opportunities for NXT and DGB
Poor diversification
The 3 months correlation between NXT and DGB is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding NXT and DGB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB and NXT 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 NXT are associated (or correlated) with DGB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB has no effect on the direction of NXT i.e., NXT and DGB go up and down completely randomly.
Pair Corralation between NXT and DGB
Assuming the 90 days trading horizon NXT is expected to generate 1.9 times less return on investment than DGB. But when comparing it to its historical volatility, NXT is 1.99 times less risky than DGB. It trades about 0.35 of its potential returns per unit of risk. DGB is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 0.63 in DGB on August 23, 2024 and sell it today you would earn a total of 0.49 from holding DGB or generate 76.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NXT vs. DGB
Performance |
| Timeline |
| NXT |
| DGB |
NXT and DGB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NXT and DGB
The main advantage of trading using opposite NXT and DGB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXT position performs unexpectedly, DGB 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 DGB will offset losses from the drop in DGB's long position.The idea behind NXT and DGB 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
Other Complementary Tools
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |