Correlation Between Hampton Financial and NextSource Materials

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

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

Diversification Opportunities for Hampton Financial and NextSource Materials

0.64

Correlation Coefficient

Hampton Financial  NextSource Materials

Poor diversification

The 3 months correlation between Hampton and NextSource is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Hampton Financial Corp and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Hampton Financial 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 Hampton Financial Corp 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 Hampton Financial i.e., Hampton Financial and NextSource Materials go up and down completely randomly.

Pair Corralation between Hampton Financial and NextSource Materials

Assuming the 90 days horizon Hampton Financial is expected to generate 4.85 times less return on investment than NextSource Materials. But when comparing it to its historical volatility, Hampton Financial Corp is 2.06 times less risky than NextSource Materials. It trades about 0.17 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  51.00  in NextSource Materials on September 26, 2024 and sell it today you would earn a total of  29.00  from holding NextSource Materials or generate 56.86% return on investment over 90 days.

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

Hampton Financial Corp  vs.  NextSource Materials

Hampton Financial Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hampton Financial Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hampton Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

NextSource Materials

Risk-Adjusted Performance

7 of 100

Modest

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 Hampton Financial and NextSource Materials

The main advantage of trading using opposite Hampton Financial and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hampton Financial 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 Hampton Financial Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.