Correlation Between Nexa Resources and Nouveau Monde

Can any of the company-specific risk be diversified away by investing in both Nexa Resources and Nouveau Monde 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 Nouveau Monde 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 Nouveau Monde Graphite, you can compare the effects of market volatilities on Nexa Resources and Nouveau Monde 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 Nouveau Monde. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nexa Resources and Nouveau Monde.

Diversification Opportunities for Nexa Resources and Nouveau Monde

-0.15

Correlation Coefficient

Nexa Resources  Nouveau Monde

Good diversification

The 3 months correlation between Nexa and Nouveau is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Nexa Resources SA and Nouveau Monde Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nouveau Monde 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 Nouveau Monde. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nouveau Monde Graphite has no effect on the direction of Nexa Resources i.e., Nexa Resources and Nouveau Monde go up and down completely randomly.

Pair Corralation between Nexa Resources and Nouveau Monde

Given the investment horizon of 90 days Nexa Resources SA is expected to generate 0.78 times more return on investment than Nouveau Monde. However, Nexa Resources SA is 1.28 times less risky than Nouveau Monde. It trades about 0.2 of its potential returns per unit of risk. Nouveau Monde Graphite is currently generating about -0.1 per unit of risk. If you would invest  598.00  in Nexa Resources SA on September 2, 2024 and sell it today you would earn a total of  164.00  from holding Nexa Resources SA or generate 27.42% return on investment over 90 days.

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

Nexa Resources SA  vs.  Nouveau Monde Graphite

Nexa Resources SA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nexa Resources SA are ranked lower than 15 (%) 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.

Nouveau Monde Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nouveau Monde Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nexa Resources and Nouveau Monde

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

The idea behind Nexa Resources SA and Nouveau Monde 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.