Correlation Between NextSource Materials and Carebook Technologies

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

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

Diversification Opportunities for NextSource Materials and Carebook Technologies

0.34

Correlation Coefficient

NextSource Materials  Carebook Technologies

Weak diversification

The 3 months correlation between NextSource and Carebook is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Carebook Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carebook Technologies 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 Carebook Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carebook Technologies has no effect on the direction of NextSource Materials i.e., NextSource Materials and Carebook Technologies go up and down completely randomly.

Pair Corralation between NextSource Materials and Carebook Technologies

Assuming the 90 days trading horizon NextSource Materials is expected to generate 2.57 times less return on investment than Carebook Technologies. But when comparing it to its historical volatility, NextSource Materials is 3.39 times less risky than Carebook Technologies. It trades about 0.1 of its potential returns per unit of risk. Carebook Technologies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7.50  in Carebook Technologies on October 24, 2024 and sell it today you would earn a total of  2.00  from holding Carebook Technologies or generate 26.67% return on investment over 90 days.

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

NextSource Materials  vs.  Carebook Technologies

NextSource Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 10 (%) 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.

Carebook Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carebook Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental drivers, Carebook Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and Carebook Technologies

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

The idea behind NextSource Materials and Carebook Technologies 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.