Correlation Between NXS and XNK

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

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

Diversification Opportunities for NXS and XNK

-0.73

Correlation Coefficient

NXS  XNK

Pay attention - limited upside

The 3 months correlation between NXS and XNK is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding NXS and XNK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XNK and NXS 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 NXS are associated (or correlated) with XNK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XNK has no effect on the direction of NXS i.e., NXS and XNK go up and down completely randomly.

Pair Corralation between NXS and XNK

Assuming the 90 days trading horizon NXS is expected to generate 7.15 times more return on investment than XNK. However, NXS is 7.15 times more volatile than XNK. It trades about 0.05 of its potential returns per unit of risk. XNK is currently generating about 0.02 per unit of risk. If you would invest  7.54  in NXS on January 26, 2024 and sell it today you would earn a total of  8.46  from holding NXS or generate 112.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	61.04%
Values	Daily Returns

NXS  vs.  XNK

NXS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NXS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NXS exhibited solid returns over the last few months and may actually be approaching a breakup point.

XNK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XNK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, XNK is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NXS and XNK

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

The idea behind NXS and XNK 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.