Correlation Between NextSource Materials and QUALCOMM Incorporated

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

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

Diversification Opportunities for NextSource Materials and QUALCOMM Incorporated

-0.25

Correlation Coefficient

NextSource Materials  QUALCOMM Incorporated

Very good diversification

The 3 months correlation between NextSource and QUALCOMM is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and QUALCOMM Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QUALCOMM Incorporated 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 QUALCOMM Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QUALCOMM Incorporated has no effect on the direction of NextSource Materials i.e., NextSource Materials and QUALCOMM Incorporated go up and down completely randomly.

Pair Corralation between NextSource Materials and QUALCOMM Incorporated

Assuming the 90 days trading horizon NextSource Materials is expected to generate 2.34 times more return on investment than QUALCOMM Incorporated. However, NextSource Materials is 2.34 times more volatile than QUALCOMM Incorporated. It trades about 0.12 of its potential returns per unit of risk. QUALCOMM Incorporated is currently generating about -0.01 per unit of risk. If you would invest  62.00  in NextSource Materials on October 21, 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NextSource Materials  vs.  QUALCOMM Incorporated

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.

QUALCOMM Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QUALCOMM Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, QUALCOMM Incorporated is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NextSource Materials and QUALCOMM Incorporated

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

The idea behind NextSource Materials and QUALCOMM Incorporated 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.