Correlation Between PAY and NXT
Can any of the company-specific risk be diversified away by investing in both PAY and NXT 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 PAY and NXT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PAY and NXT, you can compare the effects of market volatilities on PAY and NXT 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 PAY with a short position of NXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of PAY and NXT.
Diversification Opportunities for PAY and NXT
Good diversification
The 3 months correlation between PAY and NXT is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding PAY and NXT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT and PAY 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 PAY are associated (or correlated) with NXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXT has no effect on the direction of PAY i.e., PAY and NXT go up and down completely randomly.
Pair Corralation between PAY and NXT
Assuming the 90 days trading horizon PAY is expected to generate 2.11 times less return on investment than NXT. In addition to that, PAY is 1.37 times more volatile than NXT. It trades about 0.14 of its total potential returns per unit of risk. NXT is currently generating about 0.4 per unit of volatility. If you would invest 0.07 in NXT on August 25, 2024 and sell it today you would earn a total of 0.03 from holding NXT or generate 44.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PAY vs. NXT
Performance |
| Timeline |
| PAY |
| NXT |
PAY and NXT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PAY and NXT
The main advantage of trading using opposite PAY and NXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PAY position performs unexpectedly, NXT 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 NXT will offset losses from the drop in NXT's long position.The idea behind PAY and NXT 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal |