Correlation Between NextSource Materials and Precision Drilling

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

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

Diversification Opportunities for NextSource Materials and Precision Drilling

0.24

Correlation Coefficient

NextSource Materials  Precision Drilling

Modest diversification

The 3 months correlation between NextSource and Precision is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling 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 Precision Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precision Drilling has no effect on the direction of NextSource Materials i.e., NextSource Materials and Precision Drilling go up and down completely randomly.

Pair Corralation between NextSource Materials and Precision Drilling

Assuming the 90 days trading horizon NextSource Materials is expected to generate 2.31 times more return on investment than Precision Drilling. However, NextSource Materials is 2.31 times more volatile than Precision Drilling. It trades about 0.12 of its potential returns per unit of risk. Precision Drilling is currently generating about 0.11 per unit of risk. If you would invest  62.00  in NextSource Materials on October 20, 2024 and sell it today you would earn a total of  21.00  from holding NextSource Materials or generate 33.87% 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.  Precision Drilling

NextSource Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 9 (%) 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.

Precision Drilling

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Precision Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and Precision Drilling

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

The idea behind NextSource Materials and Precision Drilling 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.