Correlation Between NextSource Materials and Rathdowney Resources

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

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

Diversification Opportunities for NextSource Materials and Rathdowney Resources

0.18

Correlation Coefficient

NextSource Materials  Rathdowney Resources

Average diversification

The 3 months correlation between NextSource and Rathdowney is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Rathdowney Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rathdowney Resources 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 Rathdowney Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rathdowney Resources has no effect on the direction of NextSource Materials i.e., NextSource Materials and Rathdowney Resources go up and down completely randomly.

Pair Corralation between NextSource Materials and Rathdowney Resources

Assuming the 90 days trading horizon NextSource Materials is expected to generate 0.33 times more return on investment than Rathdowney Resources. However, NextSource Materials is 3.0 times less risky than Rathdowney Resources. It trades about -0.11 of its potential returns per unit of risk. Rathdowney Resources is currently generating about -0.22 per unit of risk. If you would invest  75.00  in NextSource Materials on January 25, 2024 and sell it today you would lose (7.00) from holding NextSource Materials or give up 9.33% of portfolio value over 90 days.

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

NextSource Materials  vs.  Rathdowney Resources

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 abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Rathdowney Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rathdowney Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Rathdowney Resources is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with NextSource Materials and Rathdowney Resources

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

The idea behind NextSource Materials and Rathdowney Resources 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.