Correlation Between NextSource Materials and Pan American

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

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

Diversification Opportunities for NextSource Materials and Pan American

-0.58

Correlation Coefficient

NextSource Materials  Pan American

Excellent diversification

The 3 months correlation between NextSource and Pan is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver 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 Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of NextSource Materials i.e., NextSource Materials and Pan American go up and down completely randomly.

Pair Corralation between NextSource Materials and Pan American

Assuming the 90 days trading horizon NextSource Materials is expected to under-perform the Pan American. But the stock apears to be less risky and, when comparing its historical volatility, NextSource Materials is 1.03 times less risky than Pan American. The stock trades about -0.17 of its potential returns per unit of risk. The Pan American Silver is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,595  in Pan American Silver on September 2, 2024 and sell it today you would earn a total of  511.00  from holding Pan American Silver or generate 19.69% return on investment over 90 days.

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

NextSource Materials  vs.  Pan American Silver

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 abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pan American Silver

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Pan American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and Pan American

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

The idea behind NextSource Materials and Pan American Silver 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.