Correlation Between NXG NextGen and WisdomTree SmallCap

Can any of the company-specific risk be diversified away by investing in both NXG NextGen and WisdomTree SmallCap 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 WisdomTree SmallCap 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 WisdomTree SmallCap Earnings, you can compare the effects of market volatilities on NXG NextGen and WisdomTree SmallCap 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 WisdomTree SmallCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of NXG NextGen and WisdomTree SmallCap.

Diversification Opportunities for NXG NextGen and WisdomTree SmallCap

0.86

Correlation Coefficient

NXG NextGen  WisdomTree SmallCap

Very poor diversification

The 3 months correlation between NXG and WisdomTree is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding NXG NextGen Infrastructure and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of NXG NextGen i.e., NXG NextGen and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between NXG NextGen and WisdomTree SmallCap

Considering the 90-day investment horizon NXG NextGen Infrastructure is expected to generate 0.85 times more return on investment than WisdomTree SmallCap. However, NXG NextGen Infrastructure is 1.18 times less risky than WisdomTree SmallCap. It trades about 0.41 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.15 per unit of risk. If you would invest  3,899  in NXG NextGen Infrastructure on September 2, 2024 and sell it today you would earn a total of  1,445  from holding NXG NextGen Infrastructure or generate 37.06% return on investment over 90 days.

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

NXG NextGen Infrastructure  vs.  WisdomTree SmallCap Earnings

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.

WisdomTree SmallCap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, WisdomTree SmallCap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXG NextGen and WisdomTree SmallCap

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

The idea behind NXG NextGen Infrastructure and WisdomTree SmallCap Earnings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.