Correlation Between NEXO and SOLVE
Can any of the company-specific risk be diversified away by investing in both NEXO and SOLVE 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 NEXO and SOLVE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NEXO and SOLVE, you can compare the effects of market volatilities on NEXO and SOLVE 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 NEXO with a short position of SOLVE. Check out your portfolio center. Please also check ongoing floating volatility patterns of NEXO and SOLVE.
Diversification Opportunities for NEXO and SOLVE
Poor diversification
The 3 months correlation between NEXO and SOLVE is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NEXO and SOLVE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOLVE and NEXO 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 NEXO are associated (or correlated) with SOLVE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOLVE has no effect on the direction of NEXO i.e., NEXO and SOLVE go up and down completely randomly.
Pair Corralation between NEXO and SOLVE
Assuming the 90 days trading horizon NEXO is expected to generate 0.64 times more return on investment than SOLVE. However, NEXO is 1.57 times less risky than SOLVE. It trades about -0.12 of its potential returns per unit of risk. SOLVE is currently generating about -0.17 per unit of risk. If you would invest 134.00 in NEXO on January 20, 2024 and sell it today you would lose (13.00) from holding NEXO or give up 9.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NEXO vs. SOLVE
Performance |
| Timeline |
| NEXO |
| SOLVE |
NEXO and SOLVE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NEXO and SOLVE
The main advantage of trading using opposite NEXO and SOLVE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEXO position performs unexpectedly, SOLVE 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 SOLVE will offset losses from the drop in SOLVE's long position.The idea behind NEXO and SOLVE 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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