Correlation Between Topbuild Corp and Nextracker

Can any of the company-specific risk be diversified away by investing in both Topbuild Corp and Nextracker 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 Topbuild Corp and Nextracker into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Topbuild Corp and Nextracker Class A, you can compare the effects of market volatilities on Topbuild Corp and Nextracker 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 Topbuild Corp with a short position of Nextracker. Check out your portfolio center. Please also check ongoing floating volatility patterns of Topbuild Corp and Nextracker.

Diversification Opportunities for Topbuild Corp and Nextracker

0.01

Correlation Coefficient

Topbuild Corp  Nextracker

Significant diversification

The 3 months correlation between Topbuild and Nextracker is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp and Nextracker Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextracker Class A and Topbuild Corp 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 Topbuild Corp are associated (or correlated) with Nextracker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextracker Class A has no effect on the direction of Topbuild Corp i.e., Topbuild Corp and Nextracker go up and down completely randomly.

Pair Corralation between Topbuild Corp and Nextracker

Considering the 90-day investment horizon Topbuild Corp is expected to generate 0.67 times more return on investment than Nextracker. However, Topbuild Corp is 1.5 times less risky than Nextracker. It trades about 0.08 of its potential returns per unit of risk. Nextracker Class A is currently generating about 0.03 per unit of risk. If you would invest  16,547  in Topbuild Corp on September 3, 2024 and sell it today you would earn a total of  22,517  from holding Topbuild Corp or generate 136.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.12%
Values	Daily Returns

Topbuild Corp  vs.  Nextracker Class A

Topbuild Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Topbuild Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Topbuild Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nextracker Class A

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nextracker Class A are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Nextracker may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Topbuild Corp and Nextracker

The main advantage of trading using opposite Topbuild Corp and Nextracker positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topbuild Corp position performs unexpectedly, Nextracker 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 Nextracker will offset losses from the drop in Nextracker's long position.

The idea behind Topbuild Corp and Nextracker Class A 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.