Correlation Between NextSource Materials and Euro Manganese

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

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

Diversification Opportunities for NextSource Materials and Euro Manganese

0.42

Correlation Coefficient

NextSource Materials  Euro Manganese

Very weak diversification

The 3 months correlation between NextSource and Euro is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Euro Manganese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euro Manganese 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 Euro Manganese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euro Manganese has no effect on the direction of NextSource Materials i.e., NextSource Materials and Euro Manganese go up and down completely randomly.

Pair Corralation between NextSource Materials and Euro Manganese

Assuming the 90 days horizon NextSource Materials is expected to generate 0.8 times more return on investment than Euro Manganese. However, NextSource Materials is 1.25 times less risky than Euro Manganese. It trades about 0.21 of its potential returns per unit of risk. Euro Manganese is currently generating about -0.12 per unit of risk. If you would invest  39.00  in NextSource Materials on September 16, 2024 and sell it today you would earn a total of  9.00  from holding NextSource Materials or generate 23.08% return on investment over 90 days.

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

NextSource Materials  vs.  Euro Manganese

NextSource Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, NextSource Materials is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Euro Manganese

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Euro Manganese are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Euro Manganese may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NextSource Materials and Euro Manganese

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

The idea behind NextSource Materials and Euro Manganese 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.