Correlation Between NextSource Materials and Lithium Americas

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

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

Diversification Opportunities for NextSource Materials and Lithium Americas

-0.41

Correlation Coefficient

NextSource Materials  Lithium Americas

Very good diversification

The 3 months correlation between NextSource and Lithium is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp 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 Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of NextSource Materials i.e., NextSource Materials and Lithium Americas go up and down completely randomly.

Pair Corralation between NextSource Materials and Lithium Americas

Assuming the 90 days trading horizon NextSource Materials is expected to generate 1.71 times more return on investment than Lithium Americas. However, NextSource Materials is 1.71 times more volatile than Lithium Americas Corp. It trades about 0.44 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.31 per unit of risk. If you would invest  51.00  in NextSource Materials on September 24, 2024 and sell it today you would earn a total of  31.00  from holding NextSource Materials or generate 60.78% return on investment over 90 days.

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

NextSource Materials  vs.  Lithium Americas Corp

NextSource Materials

Risk-Adjusted Performance

7 of 100

OK

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.

Lithium Americas Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Lithium Americas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NextSource Materials and Lithium Americas

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

The idea behind NextSource Materials and Lithium Americas Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.