Correlation Between Nextmart and Decibel Cannabis

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

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

Diversification Opportunities for Nextmart and Decibel Cannabis

-0.22

Correlation Coefficient

Nextmart  Decibel Cannabis

Very good diversification

The 3 months correlation between Nextmart and Decibel is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis and Nextmart 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 Nextmart are associated (or correlated) with Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Nextmart i.e., Nextmart and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Nextmart and Decibel Cannabis

Given the investment horizon of 90 days Nextmart is expected to generate 6.4 times more return on investment than Decibel Cannabis. However, Nextmart is 6.4 times more volatile than Decibel Cannabis. It trades about 0.1 of its potential returns per unit of risk. Decibel Cannabis is currently generating about 0.05 per unit of risk. If you would invest  0.04  in Nextmart on September 22, 2024 and sell it today you would lose (0.03) from holding Nextmart or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Nextmart  vs.  Decibel Cannabis

Nextmart

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextmart are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

Decibel Cannabis

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, Decibel Cannabis reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextmart and Decibel Cannabis

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

The idea behind Nextmart and Decibel Cannabis 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.