Correlation Between NXT and NEBL
Can any of the company-specific risk be diversified away by investing in both NXT and NEBL 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 NEBL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NXT and NEBL, you can compare the effects of market volatilities on NXT and NEBL 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 NEBL. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXT and NEBL.
Diversification Opportunities for NXT and NEBL
Weak diversification
The 3 months correlation between NXT and NEBL is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NXT and NEBL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEBL 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 NEBL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEBL has no effect on the direction of NXT i.e., NXT and NEBL go up and down completely randomly.
Pair Corralation between NXT and NEBL
Assuming the 90 days trading horizon NXT is expected to generate 11.8 times less return on investment than NEBL. But when comparing it to its historical volatility, NXT is 6.6 times less risky than NEBL. It trades about 0.05 of its potential returns per unit of risk. NEBL is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1.33 in NEBL on August 24, 2024 and sell it today you would earn a total of 15.67 from holding NEBL or generate 1178.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NXT vs. NEBL
Performance |
| Timeline |
| NXT |
| NEBL |
NXT and NEBL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NXT and NEBL
The main advantage of trading using opposite NXT and NEBL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXT position performs unexpectedly, NEBL 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 NEBL will offset losses from the drop in NEBL's long position.The idea behind NXT and NEBL 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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