Correlation Between NXS and CHP

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

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

Diversification Opportunities for NXS and CHP

0.52

Correlation Coefficient

NXS  CHP

Very weak diversification

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

Pair Corralation between NXS and CHP

Assuming the 90 days trading horizon NXS is expected to generate 3.53 times less return on investment than CHP. But when comparing it to its historical volatility, NXS is 2.27 times less risky than CHP. It trades about 0.05 of its potential returns per unit of risk. CHP is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.10  in CHP on February 11, 2025 and sell it today you would lose (0.10) from holding CHP or give up 97.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

NXS  vs.  CHP

NXS

Risk-Adjusted Performance

Weak

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

CHP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CHP may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Pair Trading with NXS and CHP

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

The idea behind NXS and CHP 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.