Correlation Between Exxon and NextSource Materials

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

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

Diversification Opportunities for Exxon and NextSource Materials

-0.57

Correlation Coefficient

Exxon  NextSource Materials

Excellent diversification

The 3 months correlation between Exxon and NextSource is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and NextSource Materials go up and down completely randomly.

Pair Corralation between Exxon and NextSource Materials

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.35 times more return on investment than NextSource Materials. However, Exxon Mobil Corp is 2.89 times less risky than NextSource Materials. It trades about 0.01 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.05 per unit of risk. If you would invest  11,407  in Exxon Mobil Corp on September 7, 2024 and sell it today you would earn a total of  71.00  from holding Exxon Mobil Corp or generate 0.62% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  NextSource Materials

Exxon Mobil Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Exxon and NextSource Materials

The main advantage of trading using opposite Exxon and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.