Correlation Between Nextmart and Medipharm Labs

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

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

Diversification Opportunities for Nextmart and Medipharm Labs

0.32

Correlation Coefficient

Nextmart  Medipharm Labs

Weak diversification

The 3 months correlation between Nextmart and Medipharm is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nextmart and Medipharm Labs Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medipharm Labs Corp 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 Medipharm Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medipharm Labs Corp has no effect on the direction of Nextmart i.e., Nextmart and Medipharm Labs go up and down completely randomly.

Pair Corralation between Nextmart and Medipharm Labs

Given the investment horizon of 90 days Nextmart is expected to generate 14.35 times more return on investment than Medipharm Labs. However, Nextmart is 14.35 times more volatile than Medipharm Labs Corp. It trades about 0.1 of its potential returns per unit of risk. Medipharm Labs Corp is currently generating about -0.05 per unit of risk. If you would invest  0.04  in Nextmart on September 25, 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 Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Nextmart  vs.  Medipharm Labs Corp

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.

Medipharm Labs Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medipharm Labs Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Nextmart and Medipharm Labs

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

The idea behind Nextmart and Medipharm Labs Corp 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .