Correlation Between Lundin Gold and NextSource Materials

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

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

Diversification Opportunities for Lundin Gold and NextSource Materials

-0.29

Correlation Coefficient

Lundin Gold  NextSource Materials

Very good diversification

The 3 months correlation between Lundin and NextSource is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Gold and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Lundin Gold 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 Lundin Gold 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 Lundin Gold i.e., Lundin Gold and NextSource Materials go up and down completely randomly.

Pair Corralation between Lundin Gold and NextSource Materials

Assuming the 90 days trading horizon Lundin Gold is expected to generate 0.49 times more return on investment than NextSource Materials. However, Lundin Gold is 2.04 times less risky than NextSource Materials. It trades about 0.12 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.0 per unit of risk. If you would invest  1,494  in Lundin Gold on October 5, 2024 and sell it today you would earn a total of  1,703  from holding Lundin Gold or generate 113.99% return on investment over 90 days.

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

Lundin Gold  vs.  NextSource Materials

Lundin Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lundin Gold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Lundin Gold is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NextSource Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 8 (%) 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 Lundin Gold and NextSource Materials

The main advantage of trading using opposite Lundin Gold and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lundin Gold 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 Lundin Gold 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.