Correlation Between MWAT and NXS

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

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

Diversification Opportunities for MWAT and NXS

-0.59

Correlation Coefficient

MWAT  NXS

Excellent diversification

The 3 months correlation between MWAT and NXS is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding MWAT and NXS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXS and MWAT 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 MWAT are associated (or correlated) with NXS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXS has no effect on the direction of MWAT i.e., MWAT and NXS go up and down completely randomly.

Pair Corralation between MWAT and NXS

Assuming the 90 days trading horizon MWAT is expected to generate 37.6 times less return on investment than NXS. But when comparing it to its historical volatility, MWAT is 6.25 times less risky than NXS. It trades about 0.01 of its potential returns per unit of risk. NXS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15.00  in NXS on February 7, 2024 and sell it today you would earn a total of  1.00  from holding NXS or generate 6.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	69.2%
Values	Daily Returns

MWAT  vs.  NXS

MWAT

Risk-Adjusted Performance

0 of 100

Very Weak

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

NXS

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NXS are ranked lower than 12 (%) 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.

Pair Trading with MWAT and NXS

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

The idea behind MWAT and NXS 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..