Correlation Between NXG NextGen and Ares Dynamic

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

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

Diversification Opportunities for NXG NextGen and Ares Dynamic

0.5

Correlation Coefficient

NXG NextGen  Ares Dynamic

Very weak diversification

The 3 months correlation between NXG and Ares is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NXG NextGen Infrastructure and Ares Dynamic Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Dynamic Credit and NXG NextGen 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 NXG NextGen Infrastructure are associated (or correlated) with Ares Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Dynamic Credit has no effect on the direction of NXG NextGen i.e., NXG NextGen and Ares Dynamic go up and down completely randomly.

Pair Corralation between NXG NextGen and Ares Dynamic

Considering the 90-day investment horizon NXG NextGen Infrastructure is expected to generate 2.22 times more return on investment than Ares Dynamic. However, NXG NextGen is 2.22 times more volatile than Ares Dynamic Credit. It trades about 0.41 of its potential returns per unit of risk. Ares Dynamic Credit is currently generating about 0.1 per unit of risk. If you would invest  3,899  in NXG NextGen Infrastructure on September 3, 2024 and sell it today you would earn a total of  1,424  from holding NXG NextGen Infrastructure or generate 36.52% return on investment over 90 days.

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

NXG NextGen Infrastructure  vs.  Ares Dynamic Credit

NXG NextGen Infrastr

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in NXG NextGen Infrastructure are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, NXG NextGen reported solid returns over the last few months and may actually be approaching a breakup point.

Ares Dynamic Credit

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Dynamic Credit are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather sound fundamental indicators, Ares Dynamic is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NXG NextGen and Ares Dynamic

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

The idea behind NXG NextGen Infrastructure and Ares Dynamic Credit 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.