Correlation Between NextSource Materials and Sun Life

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

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

Diversification Opportunities for NextSource Materials and Sun Life

0.69

Correlation Coefficient

NextSource Materials  Sun Life

Poor diversification

The 3 months correlation between NextSource and Sun is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NextSource Materials and Sun Life Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Life Financial 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 Sun Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Life Financial has no effect on the direction of NextSource Materials i.e., NextSource Materials and Sun Life go up and down completely randomly.

Pair Corralation between NextSource Materials and Sun Life

Assuming the 90 days trading horizon NextSource Materials is expected to generate 5.1 times more return on investment than Sun Life. However, NextSource Materials is 5.1 times more volatile than Sun Life Financial. It trades about 0.02 of its potential returns per unit of risk. Sun Life Financial is currently generating about -0.04 per unit of risk. If you would invest  65.00  in NextSource Materials on September 15, 2024 and sell it today you would earn a total of  1.00  from holding NextSource Materials or generate 1.54% return on investment over 90 days.

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

NextSource Materials  vs.  Sun Life Financial

NextSource Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Sun Life Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Life Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Sun Life is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NextSource Materials and Sun Life

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

The idea behind NextSource Materials and Sun Life Financial 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.