Correlation Between Nextensa and Lotus Bakeries

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Can any of the company-specific risk be diversified away by investing in both Nextensa and Lotus Bakeries 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 Nextensa and Lotus Bakeries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nextensa NV and Lotus Bakeries, you can compare the effects of market volatilities on Nextensa and Lotus Bakeries 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 Nextensa with a short position of Lotus Bakeries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextensa and Lotus Bakeries.

Diversification Opportunities for Nextensa and Lotus Bakeries

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Nextensa and Lotus is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Nextensa NV and Lotus Bakeries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Bakeries and Nextensa 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 Nextensa NV are associated (or correlated) with Lotus Bakeries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Bakeries has no effect on the direction of Nextensa i.e., Nextensa and Lotus Bakeries go up and down completely randomly.

Pair Corralation between Nextensa and Lotus Bakeries

Assuming the 90 days trading horizon Nextensa NV is expected to under-perform the Lotus Bakeries. But the stock apears to be less risky and, when comparing its historical volatility, Nextensa NV is 1.05 times less risky than Lotus Bakeries. The stock trades about -0.22 of its potential returns per unit of risk. The Lotus Bakeries is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,198,000  in Lotus Bakeries on September 23, 2024 and sell it today you would lose (114,000) from holding Lotus Bakeries or give up 9.52% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Nextensa NV  vs.  Lotus Bakeries

 Performance 
       Timeline  
Nextensa NV 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nextensa NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Lotus Bakeries 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lotus Bakeries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Nextensa and Lotus Bakeries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nextensa and Lotus Bakeries

The main advantage of trading using opposite Nextensa and Lotus Bakeries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextensa position performs unexpectedly, Lotus Bakeries 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 Lotus Bakeries will offset losses from the drop in Lotus Bakeries' long position.
The idea behind Nextensa NV and Lotus Bakeries 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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