Correlation Between NextSource Materials and AKITA Drilling

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

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

Diversification Opportunities for NextSource Materials and AKITA Drilling

-0.71

Correlation Coefficient

NextSource Materials  AKITA Drilling

Pay attention - limited upside

The 3 months correlation between NextSource and AKITA is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and NextSource Materials 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 NextSource Materials are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of NextSource Materials i.e., NextSource Materials and AKITA Drilling go up and down completely randomly.

Pair Corralation between NextSource Materials and AKITA Drilling

Assuming the 90 days trading horizon NextSource Materials is expected to generate 4.65 times more return on investment than AKITA Drilling. However, NextSource Materials is 4.65 times more volatile than AKITA Drilling. It trades about 0.17 of its potential returns per unit of risk. AKITA Drilling is currently generating about -0.07 per unit of risk. If you would invest  56.00  in NextSource Materials on September 17, 2024 and sell it today you would earn a total of  10.00  from holding NextSource Materials or generate 17.86% return on investment over 90 days.

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

NextSource Materials  vs.  AKITA Drilling

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 very healthy basic indicators, NextSource Materials is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

AKITA Drilling

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AKITA Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and AKITA Drilling

The main advantage of trading using opposite NextSource Materials and AKITA Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NextSource Materials position performs unexpectedly, AKITA Drilling 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 AKITA Drilling will offset losses from the drop in AKITA Drilling's long position.

The idea behind NextSource Materials and AKITA Drilling 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.