Correlation Between NXT and PURA
Can any of the company-specific risk be diversified away by investing in both NXT and PURA 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 PURA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NXT and PURA, you can compare the effects of market volatilities on NXT and PURA 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 PURA. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXT and PURA.
Diversification Opportunities for NXT and PURA
Good diversification
The 3 months correlation between NXT and PURA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding NXT and PURA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PURA 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 PURA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PURA has no effect on the direction of NXT i.e., NXT and PURA go up and down completely randomly.
Pair Corralation between NXT and PURA
Assuming the 90 days trading horizon NXT is expected to generate 4.3 times more return on investment than PURA. However, NXT is 4.3 times more volatile than PURA. It trades about 0.02 of its potential returns per unit of risk. PURA is currently generating about 0.1 per unit of risk. If you would invest 0.44 in NXT on November 1, 2024 and sell it today you would lose (0.34) from holding NXT or give up 76.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 39.26% |
| Values | Daily Returns |
NXT vs. PURA
Performance |
| Timeline |
| NXT |
| PURA |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
NXT and PURA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NXT and PURA
The main advantage of trading using opposite NXT and PURA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NXT position performs unexpectedly, PURA 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 PURA will offset losses from the drop in PURA's long position.The idea behind NXT and PURA 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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