Correlation Between NextSource Materials and Manulife Financial

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

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

Diversification Opportunities for NextSource Materials and Manulife Financial

0.07

Correlation Coefficient

NextSource Materials  Manulife Financial

Significant diversification

The 3 months correlation between NextSource and Manulife is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Manulife Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial Corp 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 Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial Corp has no effect on the direction of NextSource Materials i.e., NextSource Materials and Manulife Financial go up and down completely randomly.

Pair Corralation between NextSource Materials and Manulife Financial

Assuming the 90 days trading horizon NextSource Materials is expected to generate 1.43 times less return on investment than Manulife Financial. In addition to that, NextSource Materials is 6.35 times more volatile than Manulife Financial Corp. It trades about 0.01 of its total potential returns per unit of risk. Manulife Financial Corp is currently generating about 0.06 per unit of volatility. If you would invest  1,670  in Manulife Financial Corp on September 17, 2024 and sell it today you would earn a total of  34.00  from holding Manulife Financial Corp or generate 2.04% return on investment over 90 days.

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

NextSource Materials  vs.  Manulife Financial Corp

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.

Manulife Financial Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 4 (%) 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.

Pair Trading with NextSource Materials and Manulife Financial

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

The idea behind NextSource Materials and Manulife Financial Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.