Correlation Between International Business and NextSource Materials

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

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

Diversification Opportunities for International Business and NextSource Materials

-0.31

Correlation Coefficient

International Business  NextSource Materials

Very good diversification

The 3 months correlation between International and NextSource is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and International Business 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 International Business Machines 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 International Business i.e., International Business and NextSource Materials go up and down completely randomly.

Pair Corralation between International Business and NextSource Materials

Considering the 90-day investment horizon International Business Machines is expected to generate 0.37 times more return on investment than NextSource Materials. However, International Business Machines is 2.72 times less risky than NextSource Materials. It trades about 0.17 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.05 per unit of risk. If you would invest  20,194  in International Business Machines on September 7, 2024 and sell it today you would earn a total of  3,281  from holding International Business Machines or generate 16.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

International Business Machine  vs.  NextSource Materials

International Business

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, International Business displayed 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 latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with International Business and NextSource Materials

The main advantage of trading using opposite International Business and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.