Correlation Between Nexa Resources and Northern Graphite

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

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

Diversification Opportunities for Nexa Resources and Northern Graphite

0.64

Correlation Coefficient

Nexa Resources  Northern Graphite

Poor diversification

The 3 months correlation between Nexa and Northern is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nexa Resources SA and Northern Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Graphite and Nexa Resources 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 Nexa Resources SA are associated (or correlated) with Northern Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Graphite has no effect on the direction of Nexa Resources i.e., Nexa Resources and Northern Graphite go up and down completely randomly.

Pair Corralation between Nexa Resources and Northern Graphite

Given the investment horizon of 90 days Nexa Resources is expected to generate 2.04 times less return on investment than Northern Graphite. But when comparing it to its historical volatility, Nexa Resources SA is 6.17 times less risky than Northern Graphite. It trades about 0.21 of its potential returns per unit of risk. Northern Graphite is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5.40  in Northern Graphite on August 31, 2024 and sell it today you would earn a total of  0.60  from holding Northern Graphite or generate 11.11% return on investment over 90 days.

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

Nexa Resources SA  vs.  Northern Graphite

Nexa Resources SA

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nexa Resources SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nexa Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Northern Graphite

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Graphite are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Northern Graphite reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nexa Resources and Northern Graphite

The main advantage of trading using opposite Nexa Resources and Northern Graphite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nexa Resources position performs unexpectedly, Northern Graphite 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 Northern Graphite will offset losses from the drop in Northern Graphite's long position.

The idea behind Nexa Resources SA and Northern Graphite 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.