Correlation Between NextSource Materials and CVW CleanTech

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

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

Diversification Opportunities for NextSource Materials and CVW CleanTech

-0.1

Correlation Coefficient

NextSource Materials  CVW CleanTech

Good diversification

The 3 months correlation between NextSource and CVW is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and CVW CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVW CleanTech 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 CVW CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVW CleanTech has no effect on the direction of NextSource Materials i.e., NextSource Materials and CVW CleanTech go up and down completely randomly.

Pair Corralation between NextSource Materials and CVW CleanTech

Assuming the 90 days trading horizon NextSource Materials is expected to generate 1.36 times more return on investment than CVW CleanTech. However, NextSource Materials is 1.36 times more volatile than CVW CleanTech. It trades about 0.11 of its potential returns per unit of risk. CVW CleanTech is currently generating about 0.0 per unit of risk. If you would invest  81.00  in NextSource Materials on October 24, 2024 and sell it today you would earn a total of  7.00  from holding NextSource Materials or generate 8.64% return on investment over 90 days.

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

NextSource Materials  vs.  CVW CleanTech

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.

CVW CleanTech

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVW CleanTech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, CVW CleanTech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with NextSource Materials and CVW CleanTech

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

The idea behind NextSource Materials and CVW CleanTech 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.