Correlation Between Elcora Advanced and NextSource Materials

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Can any of the company-specific risk be diversified away by investing in both Elcora Advanced 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 Elcora Advanced and NextSource Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elcora Advanced Materials and NextSource Materials, you can compare the effects of market volatilities on Elcora Advanced 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 Elcora Advanced with a short position of NextSource Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elcora Advanced and NextSource Materials.

Diversification Opportunities for Elcora Advanced and NextSource Materials

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between Elcora and NextSource is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Elcora Advanced Materials and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Elcora Advanced 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 Elcora Advanced 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 Elcora Advanced i.e., Elcora Advanced and NextSource Materials go up and down completely randomly.

Pair Corralation between Elcora Advanced and NextSource Materials

Assuming the 90 days horizon Elcora Advanced Materials is expected to generate 4.16 times more return on investment than NextSource Materials. However, Elcora Advanced is 4.16 times more volatile than NextSource Materials. It trades about 0.02 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.21 per unit of risk. If you would invest  2.50  in Elcora Advanced Materials on August 29, 2024 and sell it today you would lose (0.50) from holding Elcora Advanced Materials or give up 20.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.41%
ValuesDaily Returns

Elcora Advanced Materials  vs.  NextSource Materials

 Performance 
       Timeline  
Elcora Advanced Materials 

Risk-Adjusted Performance

1 of 100

 
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Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Elcora Advanced Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Elcora Advanced showed solid returns over the last few months and may actually be approaching a breakup point.
NextSource Materials 

Risk-Adjusted Performance

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

Elcora Advanced and NextSource Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Elcora Advanced and NextSource Materials

The main advantage of trading using opposite Elcora Advanced and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elcora Advanced 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 Elcora Advanced Materials 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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