Correlation Between Manulife Financial and NextSource Materials

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

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

Diversification Opportunities for Manulife Financial and NextSource Materials

0.5

Correlation Coefficient

Manulife Financial  NextSource Materials

Very weak diversification

The 3 months correlation between Manulife and NextSource is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Manulife Financial Corp and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Manulife Financial 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 Manulife Financial Corp 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 Manulife Financial i.e., Manulife Financial and NextSource Materials go up and down completely randomly.

Pair Corralation between Manulife Financial and NextSource Materials

Assuming the 90 days trading horizon Manulife Financial Corp is expected to generate 0.09 times more return on investment than NextSource Materials. However, Manulife Financial Corp is 10.59 times less risky than NextSource Materials. It trades about -0.42 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.4 per unit of risk. If you would invest  1,773  in Manulife Financial Corp on December 5, 2024 and sell it today you would lose (93.00) from holding Manulife Financial Corp or give up 5.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Manulife Financial Corp  vs.  NextSource Materials

Manulife Financial Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Manulife Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NextSource Materials

Risk-Adjusted Performance

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Manulife Financial and NextSource Materials

The main advantage of trading using opposite Manulife Financial and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Manulife Financial 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 Manulife Financial Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.