Correlation Between Mason Graphite and NextSource Materials

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

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

Diversification Opportunities for Mason Graphite and NextSource Materials

0.44

Correlation Coefficient

Mason Graphite  NextSource Materials

Very weak diversification

The 3 months correlation between Mason and NextSource is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Mason Graphite and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and Mason Graphite 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 Mason Graphite 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 Mason Graphite i.e., Mason Graphite and NextSource Materials go up and down completely randomly.

Pair Corralation between Mason Graphite and NextSource Materials

Assuming the 90 days horizon Mason Graphite is expected to generate 2.5 times more return on investment than NextSource Materials. However, Mason Graphite is 2.5 times more volatile than NextSource Materials. It trades about 0.23 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.42 per unit of risk. If you would invest  4.50  in Mason Graphite on September 27, 2024 and sell it today you would earn a total of  3.00  from holding Mason Graphite or generate 66.67% return on investment over 90 days.

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

Mason Graphite  vs.  NextSource Materials

Mason Graphite

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mason Graphite are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Mason Graphite showed solid returns over the last few months and may actually be approaching a breakup point.

NextSource Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 8 (%) 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 Mason Graphite and NextSource Materials

The main advantage of trading using opposite Mason Graphite and NextSource Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mason Graphite 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 Mason Graphite 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.