Correlation Between Nextgen and Veridis Environment

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

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

Diversification Opportunities for Nextgen and Veridis Environment

-0.64

Correlation Coefficient

Nextgen  Veridis Environment

Excellent diversification

The 3 months correlation between Nextgen and Veridis is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nextgen and Veridis Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veridis Environment and 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 Nextgen are associated (or correlated) with Veridis Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veridis Environment has no effect on the direction of Nextgen i.e., Nextgen and Veridis Environment go up and down completely randomly.

Pair Corralation between Nextgen and Veridis Environment

Assuming the 90 days trading horizon Nextgen is expected to under-perform the Veridis Environment. In addition to that, Nextgen is 3.08 times more volatile than Veridis Environment. It trades about -0.05 of its total potential returns per unit of risk. Veridis Environment is currently generating about -0.16 per unit of volatility. If you would invest  238,400  in Veridis Environment on September 26, 2024 and sell it today you would lose (10,900) from holding Veridis Environment or give up 4.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Nextgen  vs.  Veridis Environment

Nextgen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextgen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nextgen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Veridis Environment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Veridis Environment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Veridis Environment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextgen and Veridis Environment

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

The idea behind Nextgen and Veridis Environment 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.