Correlation Between Berkshire Hathaway and NXT Energy

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

By analyzing existing cross correlation between Berkshire Hathaway and NXT Energy Solutions, you can compare the effects of market volatilities on Berkshire Hathaway and NXT Energy 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 Berkshire Hathaway with a short position of NXT Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and NXT Energy.

Diversification Opportunities for Berkshire Hathaway and NXT Energy

-0.35

Correlation Coefficient

Berkshire Hathaway  NXT Energy

Very good diversification

The 3 months correlation between Berkshire and NXT is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and NXT Energy Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT Energy Solutions and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with NXT Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXT Energy Solutions has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and NXT Energy go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and NXT Energy

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 7.87 times less return on investment than NXT Energy. But when comparing it to its historical volatility, Berkshire Hathaway is 12.65 times less risky than NXT Energy. It trades about 0.05 of its potential returns per unit of risk. NXT Energy Solutions is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18.00  in NXT Energy Solutions on September 13, 2024 and sell it today you would lose (4.00) from holding NXT Energy Solutions or give up 22.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Berkshire Hathaway  vs.  NXT Energy Solutions

Berkshire Hathaway

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NXT Energy Solutions

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NXT Energy Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, NXT Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and NXT Energy

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

The idea behind Berkshire Hathaway and NXT Energy Solutions 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.