Correlation Between Arizona Gold and NextSource Materials

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

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

Diversification Opportunities for Arizona Gold and NextSource Materials

0.1

Correlation Coefficient

Arizona Gold  NextSource Materials

Average diversification

The 3 months correlation between Arizona and NextSource is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Arizona Gold Silver and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Arizona Gold 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 Arizona Gold Silver 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 Arizona Gold i.e., Arizona Gold and NextSource Materials go up and down completely randomly.

Pair Corralation between Arizona Gold and NextSource Materials

Assuming the 90 days horizon Arizona Gold Silver is expected to generate 0.81 times more return on investment than NextSource Materials. However, Arizona Gold Silver is 1.23 times less risky than NextSource Materials. It trades about 0.2 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.1 per unit of risk. If you would invest  34.00  in Arizona Gold Silver on September 26, 2024 and sell it today you would earn a total of  16.00  from holding Arizona Gold Silver or generate 47.06% return on investment over 90 days.

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

Arizona Gold Silver  vs.  NextSource Materials

Arizona Gold Silver

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Gold Silver are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Arizona Gold showed solid returns over the last few months and may actually be approaching a breakup point.

NextSource Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 7 (%) 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.

Pair Trading with Arizona Gold and NextSource Materials

The main advantage of trading using opposite Arizona Gold and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arizona Gold 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 Arizona Gold Silver 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.