Correlation Between Amazon and NextSource Materials

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

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

Diversification Opportunities for Amazon and NextSource Materials

0.86

Correlation Coefficient

Amazon  NextSource Materials

Very poor diversification

The 3 months correlation between Amazon and NextSource is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Amazon 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 Amazon Inc are associated (or correlated) with NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Amazon i.e., Amazon and NextSource Materials go up and down completely randomly.

Pair Corralation between Amazon and NextSource Materials

Given the investment horizon of 90 days Amazon Inc is expected to generate 0.27 times more return on investment than NextSource Materials. However, Amazon Inc is 3.67 times less risky than NextSource Materials. It trades about -0.09 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.15 per unit of risk. If you would invest  22,375  in Amazon Inc on December 27, 2024 and sell it today you would lose (2,239) from holding Amazon Inc or give up 10.01% of portfolio value over 90 days.

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

Amazon Inc  vs.  NextSource Materials

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

NextSource Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days NextSource Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Amazon and NextSource Materials

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

The idea behind Amazon Inc and NextSource Materials 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.