Correlation Between First American and NextSource Materials

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

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

Diversification Opportunities for First American and NextSource Materials

0.05

Correlation Coefficient

First American  NextSource Materials

Significant diversification

The 3 months correlation between First and NextSource is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding First American Silver and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials and First American 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 First American Silver are associated (or correlated) with NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of First American i.e., First American and NextSource Materials go up and down completely randomly.

Pair Corralation between First American and NextSource Materials

Given the investment horizon of 90 days First American Silver is expected to generate 12.15 times more return on investment than NextSource Materials. However, First American is 12.15 times more volatile than NextSource Materials. It trades about 0.11 of its potential returns per unit of risk. NextSource Materials is currently generating about 0.17 per unit of risk. If you would invest  0.01  in First American Silver on May 9, 2025 and sell it today you would earn a total of  0.00  from holding First American Silver or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

First American Silver  vs.  NextSource Materials

First American Silver

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First American Silver are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, First American sustained solid returns over the last few months and may actually be approaching a breakup point.

NextSource Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NextSource Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, NextSource Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First American and NextSource Materials

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

The idea behind First American Silver and NextSource Materials 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.