Correlation Between STEEM and NXT
Can any of the company-specific risk be diversified away by investing in both STEEM 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 STEEM and NXT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STEEM and NXT, you can compare the effects of market volatilities on STEEM 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 STEEM with a short position of NXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEEM and NXT.
Diversification Opportunities for STEEM and NXT
Poor diversification
The 3 months correlation between STEEM and NXT is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding STEEM and NXT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT and STEEM 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 STEEM 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 STEEM i.e., STEEM and NXT go up and down completely randomly.
Pair Corralation between STEEM and NXT
Assuming the 90 days trading horizon STEEM is expected to generate 3.32 times less return on investment than NXT. But when comparing it to its historical volatility, STEEM is 2.77 times less risky than NXT. It trades about 0.03 of its potential returns per unit of risk. NXT is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 0.29 in NXT on August 23, 2024 and sell it today you would lose (0.19) from holding NXT or give up 66.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
STEEM vs. NXT
Performance |
| Timeline |
| STEEM |
| NXT |
STEEM and NXT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STEEM and NXT
The main advantage of trading using opposite STEEM and NXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STEEM 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 STEEM 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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