Correlation Between WM Technology and NextSource Materials

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

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

Diversification Opportunities for WM Technology and NextSource Materials

-0.27

Correlation Coefficient

WM Technology  NextSource Materials

Very good diversification

The 3 months correlation between MAPSW and NextSource is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding WM Technology and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and WM Technology 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 WM Technology 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 WM Technology i.e., WM Technology and NextSource Materials go up and down completely randomly.

Pair Corralation between WM Technology and NextSource Materials

Assuming the 90 days horizon WM Technology is expected to generate 4.05 times more return on investment than NextSource Materials. However, WM Technology is 4.05 times more volatile than NextSource Materials. It trades about 0.07 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.05 per unit of risk. If you would invest  9.00  in WM Technology on September 16, 2024 and sell it today you would lose (6.02) from holding WM Technology or give up 66.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.76%
Values	Daily Returns

WM Technology  vs.  NextSource Materials

WM Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WM Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, WM Technology showed solid returns over the last few months and may actually be approaching a breakup point.

NextSource Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, NextSource Materials is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WM Technology and NextSource Materials

The main advantage of trading using opposite WM Technology and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WM Technology 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 WM Technology 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.