Correlation Between Sarfati and Nextgen

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

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

Diversification Opportunities for Sarfati and Nextgen

-0.69

Correlation Coefficient

Sarfati  Nextgen

Excellent diversification

The 3 months correlation between Sarfati and Nextgen is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sarfati and Nextgen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextgen and Sarfati 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 Sarfati are associated (or correlated) with Nextgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextgen has no effect on the direction of Sarfati i.e., Sarfati and Nextgen go up and down completely randomly.

Pair Corralation between Sarfati and Nextgen

Assuming the 90 days trading horizon Sarfati is expected to generate 0.29 times more return on investment than Nextgen. However, Sarfati is 3.5 times less risky than Nextgen. It trades about 0.08 of its potential returns per unit of risk. Nextgen is currently generating about -0.08 per unit of risk. If you would invest  248,790  in Sarfati on September 27, 2024 and sell it today you would earn a total of  170,510  from holding Sarfati or generate 68.54% return on investment over 90 days.

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

Sarfati  vs.  Nextgen

Sarfati

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sarfati are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sarfati sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sarfati and Nextgen

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

The idea behind Sarfati and Nextgen 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.