Correlation Between Chevron Corp and NextSource Materials

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

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

Diversification Opportunities for Chevron Corp and NextSource Materials

-0.94

Correlation Coefficient

Chevron Corp  NextSource Materials

Pay attention - limited upside

The 3 months correlation between Chevron and NextSource is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and NextSource Materials go up and down completely randomly.

Pair Corralation between Chevron Corp and NextSource Materials

Considering the 90-day investment horizon Chevron Corp is expected to generate 0.27 times more return on investment than NextSource Materials. However, Chevron Corp is 3.64 times less risky than NextSource Materials. It trades about 0.01 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.04 per unit of risk. If you would invest  15,692  in Chevron Corp on September 10, 2024 and sell it today you would earn a total of  16.00  from holding Chevron Corp or generate 0.1% return on investment over 90 days.

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

Chevron Corp  vs.  NextSource Materials

Chevron Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Chevron Corp showed 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 Chevron Corp and NextSource Materials

The main advantage of trading using opposite Chevron Corp and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.