Correlation Between Precious Metals and NextSource Materials

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

Diversification Opportunities for Precious Metals and NextSource Materials

-0.36
  Correlation Coefficient

Very good diversification

The 3 months correlation between Precious and NextSource is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals And and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Precious Metals 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 Precious Metals And 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 Precious Metals i.e., Precious Metals and NextSource Materials go up and down completely randomly.

Pair Corralation between Precious Metals and NextSource Materials

Assuming the 90 days trading horizon Precious Metals is expected to generate 1.39 times less return on investment than NextSource Materials. But when comparing it to its historical volatility, Precious Metals And is 4.37 times less risky than NextSource Materials. It trades about 0.16 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  81.00  in NextSource Materials on October 22, 2024 and sell it today you would earn a total of  2.00  from holding NextSource Materials or generate 2.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Precious Metals And  vs.  NextSource Materials

 Performance 
       Timeline  
Precious Metals And 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Precious Metals And has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Precious Metals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
NextSource Materials 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, NextSource Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Precious Metals and NextSource Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Precious Metals and NextSource Materials

The main advantage of trading using opposite Precious Metals and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Precious Metals 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 Precious Metals And 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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