Correlation Between Electra Battery and NextSource Materials
Can any of the company-specific risk be diversified away by investing in both Electra Battery 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 Electra Battery and NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electra Battery Materials and NextSource Materials, you can compare the effects of market volatilities on Electra Battery 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 Electra Battery with a short position of NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electra Battery and NextSource Materials.
Diversification Opportunities for Electra Battery and NextSource Materials
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Electra and NextSource is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Electra Battery 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 Electra Battery Materials 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 Electra Battery i.e., Electra Battery and NextSource Materials go up and down completely randomly.
Pair Corralation between Electra Battery and NextSource Materials
Assuming the 90 days trading horizon Electra Battery Materials is expected to under-perform the NextSource Materials. But the stock apears to be less risky and, when comparing its historical volatility, Electra Battery Materials is 1.74 times less risky than NextSource Materials. The stock trades about -0.19 of its potential returns per unit of risk. The NextSource Materials is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 53.00 in NextSource Materials on September 14, 2024 and sell it today you would earn a total of 10.00 from holding NextSource Materials or generate 18.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Electra Battery Materials vs. NextSource Materials
Performance |
| Timeline |
| Electra Battery Materials |
| NextSource Materials |
Electra Battery and NextSource Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Electra Battery and NextSource Materials
The main advantage of trading using opposite Electra Battery and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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.| Electra Battery vs. Foraco International SA | Electra Battery vs. Geodrill Limited | Electra Battery vs. Major Drilling Group | Electra Battery vs. Bri Chem Corp |
| NextSource Materials vs. Foraco International SA | NextSource Materials vs. Geodrill Limited | NextSource Materials vs. Major Drilling Group | NextSource Materials vs. Bri Chem Corp |
Check out your portfolio center.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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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