Correlation Between Lomiko Metals and NextSource Materials

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

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

Diversification Opportunities for Lomiko Metals and NextSource Materials

0.89

Correlation Coefficient

Lomiko Metals  NextSource Materials

Very poor diversification

The 3 months correlation between Lomiko and NextSource is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Lomiko Metals and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Lomiko Metals 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 Lomiko Metals 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 Lomiko Metals i.e., Lomiko Metals and NextSource Materials go up and down completely randomly.

Pair Corralation between Lomiko Metals and NextSource Materials

Assuming the 90 days horizon Lomiko Metals is expected to under-perform the NextSource Materials. In addition to that, Lomiko Metals is 1.78 times more volatile than NextSource Materials. It trades about -0.19 of its total potential returns per unit of risk. NextSource Materials is currently generating about -0.17 per unit of volatility. If you would invest  72.00  in NextSource Materials on September 2, 2024 and sell it today you would lose (19.00) from holding NextSource Materials or give up 26.39% of portfolio value over 90 days.

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

Lomiko Metals  vs.  NextSource Materials

Lomiko Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lomiko Metals 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated 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 Lomiko Metals and NextSource Materials

The main advantage of trading using opposite Lomiko Metals and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lomiko Metals 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 Lomiko Metals 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.