Correlation Between Defiance Silver and NextSource Materials

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

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

Diversification Opportunities for Defiance Silver and NextSource Materials

-0.16

Correlation Coefficient

Defiance Silver  NextSource Materials

Good diversification

The 3 months correlation between Defiance and NextSource is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Defiance Silver Corp and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Defiance Silver 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 Defiance Silver 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 Defiance Silver i.e., Defiance Silver and NextSource Materials go up and down completely randomly.

Pair Corralation between Defiance Silver and NextSource Materials

Assuming the 90 days horizon Defiance Silver Corp is expected to generate 1.66 times more return on investment than NextSource Materials. However, Defiance Silver is 1.66 times more volatile than NextSource Materials. It trades about 0.04 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.04 per unit of risk. If you would invest  19.00  in Defiance Silver Corp on October 4, 2024 and sell it today you would earn a total of  3.00  from holding Defiance Silver Corp or generate 15.79% return on investment over 90 days.

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

Defiance Silver Corp  vs.  NextSource Materials

Defiance Silver Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defiance Silver Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Defiance Silver is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

NextSource Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, NextSource Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defiance Silver and NextSource Materials

The main advantage of trading using opposite Defiance Silver and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defiance Silver 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 Defiance Silver 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.