Correlation Between ELEC and NXT

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

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

Diversification Opportunities for ELEC and NXT

0.63

Correlation Coefficient

ELEC  NXT

Poor diversification

The 3 months correlation between ELEC and NXT is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding ELEC and NXT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT and ELEC 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 ELEC are associated (or correlated) with NXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXT has no effect on the direction of ELEC i.e., ELEC and NXT go up and down completely randomly.

Pair Corralation between ELEC and NXT

Assuming the 90 days trading horizon ELEC is expected to generate 2.6 times more return on investment than NXT. However, ELEC is 2.6 times more volatile than NXT. It trades about 0.13 of its potential returns per unit of risk. NXT is currently generating about 0.06 per unit of risk. If you would invest  0.02  in ELEC on June 4, 2025 and sell it today you would earn a total of  0.01  from holding ELEC or generate 36.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

ELEC  vs.  NXT

ELEC

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in ELEC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ELEC exhibited solid returns over the last few months and may actually be approaching a breakup point.

NXT

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in NXT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NXT may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Pair Trading with ELEC and NXT

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

The idea behind ELEC and NXT 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.