Correlation Between NextSource Materials and Canfor

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

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

Diversification Opportunities for NextSource Materials and Canfor

-0.61

Correlation Coefficient

NextSource Materials  Canfor

Excellent diversification

The 3 months correlation between NextSource and Canfor is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor and NextSource Materials 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 NextSource Materials are associated (or correlated) with Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of NextSource Materials i.e., NextSource Materials and Canfor go up and down completely randomly.

Pair Corralation between NextSource Materials and Canfor

Assuming the 90 days trading horizon NextSource Materials is expected to generate 3.81 times less return on investment than Canfor. In addition to that, NextSource Materials is 1.76 times more volatile than Canfor. It trades about 0.01 of its total potential returns per unit of risk. Canfor is currently generating about 0.04 per unit of volatility. If you would invest  1,580  in Canfor on September 14, 2024 and sell it today you would earn a total of  59.00  from holding Canfor or generate 3.73% return on investment over 90 days.

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

NextSource Materials  vs.  Canfor

NextSource Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextSource Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NextSource Materials is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canfor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canfor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NextSource Materials and Canfor

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

The idea behind NextSource Materials and Canfor 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .