Correlation Between NextSource Materials and Sienna Resources

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

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

Diversification Opportunities for NextSource Materials and Sienna Resources

0.19

Correlation Coefficient

NextSource Materials  Sienna Resources

Average diversification

The 3 months correlation between NextSource and Sienna is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Sienna Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sienna Resources 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 Sienna Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sienna Resources has no effect on the direction of NextSource Materials i.e., NextSource Materials and Sienna Resources go up and down completely randomly.

Pair Corralation between NextSource Materials and Sienna Resources

Assuming the 90 days trading horizon NextSource Materials is expected to generate 1.11 times less return on investment than Sienna Resources. But when comparing it to its historical volatility, NextSource Materials is 3.43 times less risky than Sienna Resources. It trades about 0.11 of its potential returns per unit of risk. Sienna Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Sienna Resources on September 22, 2024 and sell it today you would lose (1.00) from holding Sienna Resources or give up 25.0% of portfolio value over 90 days.

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

NextSource Materials  vs.  Sienna Resources

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.

Sienna Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sienna Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sienna Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextSource Materials and Sienna Resources

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

The idea behind NextSource Materials and Sienna Resources 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.