Correlation Between NextSource Materials and Tree Island

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

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

Diversification Opportunities for NextSource Materials and Tree Island

-0.75

Correlation Coefficient

NextSource Materials  Tree Island

Pay attention - limited upside

The 3 months correlation between NextSource and Tree is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of NextSource Materials i.e., NextSource Materials and Tree Island go up and down completely randomly.

Pair Corralation between NextSource Materials and Tree Island

Assuming the 90 days trading horizon NextSource Materials is expected to under-perform the Tree Island. In addition to that, NextSource Materials is 1.41 times more volatile than Tree Island Steel. It trades about -0.03 of its total potential returns per unit of risk. Tree Island Steel is currently generating about 0.12 per unit of volatility. If you would invest  252.00  in Tree Island Steel on September 13, 2024 and sell it today you would earn a total of  48.00  from holding Tree Island Steel or generate 19.05% return on investment over 90 days.

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

NextSource Materials  vs.  Tree Island Steel

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 latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Tree Island Steel

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with NextSource Materials and Tree Island

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

The idea behind NextSource Materials and Tree Island Steel 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.