Correlation Between NXT Energy and EcoPlus

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

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

Diversification Opportunities for NXT Energy and EcoPlus

0.43

Correlation Coefficient

NXT Energy  EcoPlus

Very weak diversification

The 3 months correlation between NXT and EcoPlus is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NXT Energy Solutions and EcoPlus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EcoPlus and NXT Energy 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 Energy Solutions are associated (or correlated) with EcoPlus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EcoPlus has no effect on the direction of NXT Energy i.e., NXT Energy and EcoPlus go up and down completely randomly.

Pair Corralation between NXT Energy and EcoPlus

Assuming the 90 days horizon NXT Energy Solutions is expected to under-perform the EcoPlus. But the otc stock apears to be less risky and, when comparing its historical volatility, NXT Energy Solutions is 2.68 times less risky than EcoPlus. The otc stock trades about -0.11 of its potential returns per unit of risk. The EcoPlus is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.19  in EcoPlus on March 5, 2024 and sell it today you would earn a total of  0.01  from holding EcoPlus or generate 0.84% return on investment over 90 days.

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

NXT Energy Solutions  vs.  EcoPlus

NXT Energy Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NXT Energy Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

EcoPlus

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EcoPlus are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, EcoPlus disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NXT Energy and EcoPlus

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

The idea behind NXT Energy Solutions and EcoPlus 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.