Correlation Between American Express and NextSource Materials

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

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

Diversification Opportunities for American Express and NextSource Materials

-0.89

Correlation Coefficient

American Express  NextSource Materials

Pay attention - limited upside

The 3 months correlation between American and NextSource is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Express and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and American Express 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 American Express 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 American Express i.e., American Express and NextSource Materials go up and down completely randomly.

Pair Corralation between American Express and NextSource Materials

Considering the 90-day investment horizon American Express is expected to generate 1.17 times less return on investment than NextSource Materials. But when comparing it to its historical volatility, American Express is 3.62 times less risky than NextSource Materials. It trades about 0.06 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  39.00  in NextSource Materials on September 11, 2024 and sell it today you would earn a total of  0.00  from holding NextSource Materials or generate 0.0% return on investment over 90 days.

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

American Express  vs.  NextSource Materials

American Express

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

NextSource Materials

Risk-Adjusted Performance

0 of 100

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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Express and NextSource Materials

The main advantage of trading using opposite American Express and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..