Correlation Between Kava and NXS

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

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

Diversification Opportunities for Kava and NXS

0.84

Correlation Coefficient

Kava  NXS

Very poor diversification

The 3 months correlation between Kava and NXS is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Kava and NXS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXS and Kava 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 Kava are associated (or correlated) with NXS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXS has no effect on the direction of Kava i.e., Kava and NXS go up and down completely randomly.

Pair Corralation between Kava and NXS

Assuming the 90 days trading horizon Kava is expected to generate 1.36 times more return on investment than NXS. However, Kava is 1.36 times more volatile than NXS. It trades about 0.23 of its potential returns per unit of risk. NXS is currently generating about 0.21 per unit of risk. If you would invest  29.00  in Kava on September 1, 2024 and sell it today you would earn a total of  31.00  from holding Kava or generate 106.9% return on investment over 90 days.

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

Kava  vs.  NXS

Kava

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kava are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Kava exhibited solid returns over the last few months and may actually be approaching a breakup point.

NXS

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NXS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NXS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kava and NXS

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

The idea behind Kava and NXS 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.