Correlation Between NEXT Plc and Gap

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

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

Diversification Opportunities for NEXT Plc and Gap

0.52

Correlation Coefficient

NEXT Plc  Gap

Very weak diversification

The 3 months correlation between NEXT and Gap is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding NEXT plc and The Gap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap and NEXT Plc 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 NEXT plc are associated (or correlated) with Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap has no effect on the direction of NEXT Plc i.e., NEXT Plc and Gap go up and down completely randomly.

Pair Corralation between NEXT Plc and Gap

Assuming the 90 days horizon NEXT Plc is expected to generate 1.74 times less return on investment than Gap. But when comparing it to its historical volatility, NEXT plc is 2.59 times less risky than Gap. It trades about 0.04 of its potential returns per unit of risk. The Gap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,728  in The Gap on April 24, 2025 and sell it today you would earn a total of  25.00  from holding The Gap or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

NEXT plc  vs.  The Gap

NEXT plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NEXT plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NEXT Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Gap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with NEXT Plc and Gap

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

The idea behind NEXT plc and The Gap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.