Correlation Between NEXE Innovations and Karat Packaging

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

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

Diversification Opportunities for NEXE Innovations and Karat Packaging

0.56

Correlation Coefficient

NEXE Innovations  Karat Packaging

Very weak diversification

The 3 months correlation between NEXE and Karat is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NEXE Innovations and Karat Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karat Packaging and NEXE Innovations 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 NEXE Innovations are associated (or correlated) with Karat Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karat Packaging has no effect on the direction of NEXE Innovations i.e., NEXE Innovations and Karat Packaging go up and down completely randomly.

Pair Corralation between NEXE Innovations and Karat Packaging

Assuming the 90 days horizon NEXE Innovations is expected to generate 2.81 times more return on investment than Karat Packaging. However, NEXE Innovations is 2.81 times more volatile than Karat Packaging. It trades about 0.11 of its potential returns per unit of risk. Karat Packaging is currently generating about 0.23 per unit of risk. If you would invest  24.00  in NEXE Innovations on September 14, 2024 and sell it today you would earn a total of  7.00  from holding NEXE Innovations or generate 29.17% return on investment over 90 days.

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

NEXE Innovations  vs.  Karat Packaging

NEXE Innovations

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NEXE Innovations are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, NEXE Innovations reported solid returns over the last few months and may actually be approaching a breakup point.

Karat Packaging

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with NEXE Innovations and Karat Packaging

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

The idea behind NEXE Innovations and Karat Packaging 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.