Correlation Between NextSource Materials and Brookfield

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

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

Diversification Opportunities for NextSource Materials and Brookfield

0.8

Correlation Coefficient

NextSource Materials  Brookfield

Very poor diversification

The 3 months correlation between NextSource and Brookfield is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield 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 Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of NextSource Materials i.e., NextSource Materials and Brookfield go up and down completely randomly.

Pair Corralation between NextSource Materials and Brookfield

Assuming the 90 days trading horizon NextSource Materials is expected to generate 5.64 times more return on investment than Brookfield. However, NextSource Materials is 5.64 times more volatile than Brookfield. It trades about 0.02 of its potential returns per unit of risk. Brookfield is currently generating about -0.04 per unit of risk. If you would invest  65.00  in NextSource Materials on September 15, 2024 and sell it today you would earn a total of  1.00  from holding NextSource Materials or generate 1.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

NextSource Materials  vs.  Brookfield

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

Brookfield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Brookfield is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NextSource Materials and Brookfield

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

The idea behind NextSource Materials and Brookfield 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.