Correlation Between PayPal Holdings and NextSource Materials

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

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

Diversification Opportunities for PayPal Holdings and NextSource Materials

-0.86

Correlation Coefficient

PayPal Holdings  NextSource Materials

Pay attention - limited upside

The 3 months correlation between PayPal and NextSource is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and NextSource Materials go up and down completely randomly.

Pair Corralation between PayPal Holdings and NextSource Materials

Given the investment horizon of 90 days PayPal Holdings is expected to generate 0.47 times more return on investment than NextSource Materials. However, PayPal Holdings is 2.13 times less risky than NextSource Materials. It trades about 0.22 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.1 per unit of risk. If you would invest  7,036  in PayPal Holdings on September 12, 2024 and sell it today you would earn a total of  2,037  from holding PayPal Holdings or generate 28.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

PayPal Holdings  vs.  NextSource Materials

PayPal Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, PayPal Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PayPal Holdings and NextSource Materials

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

The idea behind PayPal Holdings and NextSource Materials 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.