Correlation Between Diamond Fields and NextSource Materials

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

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

Diversification Opportunities for Diamond Fields and NextSource Materials

-0.81

Correlation Coefficient

Diamond Fields  NextSource Materials

Pay attention - limited upside

The 3 months correlation between Diamond and NextSource is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Fields Resources and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Diamond Fields 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 Diamond Fields Resources 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 Diamond Fields i.e., Diamond Fields and NextSource Materials go up and down completely randomly.

Pair Corralation between Diamond Fields and NextSource Materials

Assuming the 90 days horizon Diamond Fields Resources is expected to generate 2.15 times more return on investment than NextSource Materials. However, Diamond Fields is 2.15 times more volatile than NextSource Materials. It trades about 0.0 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.04 per unit of risk. If you would invest  13.00  in Diamond Fields Resources on October 21, 2024 and sell it today you would lose (11.50) from holding Diamond Fields Resources or give up 88.46% of portfolio value over 90 days.

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

Diamond Fields Resources  vs.  NextSource Materials

Diamond Fields Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Fields Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

NextSource Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 9 (%) 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 Diamond Fields and NextSource Materials

The main advantage of trading using opposite Diamond Fields and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Fields 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 Diamond Fields Resources 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.