Correlation Between NextSource Materials and NGEx Minerals

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

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

Diversification Opportunities for NextSource Materials and NGEx Minerals

-0.22

Correlation Coefficient

NextSource Materials  NGEx Minerals

Very good diversification

The 3 months correlation between NextSource and NGEx is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and NGEx Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGEx Minerals 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 NGEx Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGEx Minerals has no effect on the direction of NextSource Materials i.e., NextSource Materials and NGEx Minerals go up and down completely randomly.

Pair Corralation between NextSource Materials and NGEx Minerals

Assuming the 90 days trading horizon NextSource Materials is expected to generate 2.28 times more return on investment than NGEx Minerals. However, NextSource Materials is 2.28 times more volatile than NGEx Minerals. It trades about 0.44 of its potential returns per unit of risk. NGEx Minerals is currently generating about 0.06 per unit of risk. If you would invest  50.00  in NextSource Materials on September 22, 2024 and sell it today you would earn a total of  32.00  from holding NextSource Materials or generate 64.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

NextSource Materials  vs.  NGEx Minerals

NextSource Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 8 (%) 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.

NGEx Minerals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NGEx Minerals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, NGEx Minerals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and NGEx Minerals

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

The idea behind NextSource Materials and NGEx Minerals 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.