Correlation Between NXT and MLN

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

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

Diversification Opportunities for NXT and MLN

0.15

Correlation Coefficient

NXT  MLN

Average diversification

The 3 months correlation between NXT and MLN is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding NXT and MLN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MLN and NXT 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 NXT are associated (or correlated) with MLN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MLN has no effect on the direction of NXT i.e., NXT and MLN go up and down completely randomly.

Pair Corralation between NXT and MLN

Assuming the 90 days trading horizon NXT is expected to generate 1.09 times more return on investment than MLN. However, NXT is 1.09 times more volatile than MLN. It trades about 0.29 of its potential returns per unit of risk. MLN is currently generating about 0.14 per unit of risk. If you would invest  0.07  in NXT on August 30, 2024 and sell it today you would earn a total of  0.02  from holding NXT or generate 29.05% return on investment over 90 days.

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

NXT  vs.  MLN

NXT

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NXT are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NXT exhibited solid returns over the last few months and may actually be approaching a breakup point.

MLN

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MLN are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MLN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT and MLN

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

The idea behind NXT and MLN 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.