Correlation Between Nextmart and American Green

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

By analyzing existing cross correlation between Nextmart and American Green, you can compare the effects of market volatilities on Nextmart and American Green 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 American Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextmart and American Green.

Diversification Opportunities for Nextmart and American Green

-0.25

Correlation Coefficient

Nextmart  American Green

Very good diversification

The 3 months correlation between Nextmart and American is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and American Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Green 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 American Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Green has no effect on the direction of Nextmart i.e., Nextmart and American Green go up and down completely randomly.

Pair Corralation between Nextmart and American Green

Given the investment horizon of 90 days Nextmart is expected to generate 3.06 times more return on investment than American Green. However, Nextmart is 3.06 times more volatile than American Green. It trades about 0.1 of its potential returns per unit of risk. American Green is currently generating about 0.08 per unit of risk. If you would invest  0.04  in Nextmart on September 24, 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	100.0%
Values	Daily Returns

Nextmart  vs.  American Green

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 weak primary indicators, Nextmart reported solid returns over the last few months and may actually be approaching a breakup point.

American Green

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Green are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, American Green sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextmart and American Green

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

The idea behind Nextmart and American Green 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.