Correlation Between Financial and NextSource Materials

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

By analyzing existing cross correlation between Financial 15 Split and NextSource Materials, you can compare the effects of market volatilities on Financial 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 Financial with a short position of NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and NextSource Materials.

Diversification Opportunities for Financial and NextSource Materials

-0.92

Correlation Coefficient

Financial  NextSource Materials

Pay attention - limited upside

The 3 months correlation between Financial and NextSource is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Financial 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 Financial 15 Split 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 Financial i.e., Financial and NextSource Materials go up and down completely randomly.

Pair Corralation between Financial and NextSource Materials

Assuming the 90 days trading horizon Financial 15 Split is expected to generate 0.09 times more return on investment than NextSource Materials. However, Financial 15 Split is 10.62 times less risky than NextSource Materials. It trades about 0.26 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.17 per unit of risk. If you would invest  1,016  in Financial 15 Split on September 3, 2024 and sell it today you would earn a total of  43.00  from holding Financial 15 Split or generate 4.23% return on investment over 90 days.

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

Financial 15 Split  vs.  NextSource Materials

Financial 15 Split

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Financial and NextSource Materials

The main advantage of trading using opposite Financial and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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 Financial 15 Split 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.