Correlation Between HP and NextSource Materials

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Can any of the company-specific risk be diversified away by investing in both HP 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 HP and NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and NextSource Materials, you can compare the effects of market volatilities on HP 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 HP with a short position of NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and NextSource Materials.

Diversification Opportunities for HP and NextSource Materials

-0.68
  Correlation Coefficient

Excellent diversification

The 3 months correlation between HP and NextSource is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and HP 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 HP Inc 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 HP i.e., HP and NextSource Materials go up and down completely randomly.

Pair Corralation between HP and NextSource Materials

Considering the 90-day investment horizon HP Inc is expected to generate 0.59 times more return on investment than NextSource Materials. However, HP Inc is 1.7 times less risky than NextSource Materials. It trades about 0.07 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.11 per unit of risk. If you would invest  3,354  in HP Inc on September 6, 2024 and sell it today you would earn a total of  282.00  from holding HP Inc or generate 8.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

HP Inc  vs.  NextSource Materials

 Performance 
       Timeline  
HP Inc 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, HP may actually be approaching a critical reversion point that can send shares even higher in January 2025.
NextSource Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

HP and NextSource Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HP and NextSource Materials

The main advantage of trading using opposite HP and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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