Correlation Between Coles and Liontown Resources

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

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

Diversification Opportunities for Coles and Liontown Resources

0.25

Correlation Coefficient

Coles  Liontown Resources

Modest diversification

The 3 months correlation between Coles and Liontown is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Coles Group and Liontown Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Coles 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 Coles Group are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Coles i.e., Coles and Liontown Resources go up and down completely randomly.

Pair Corralation between Coles and Liontown Resources

Assuming the 90 days trading horizon Coles Group is expected to generate 0.18 times more return on investment than Liontown Resources. However, Coles Group is 5.6 times less risky than Liontown Resources. It trades about 0.06 of its potential returns per unit of risk. Liontown Resources is currently generating about 0.01 per unit of risk. If you would invest  1,922  in Coles Group on December 5, 2024 and sell it today you would earn a total of  53.00  from holding Coles Group or generate 2.76% return on investment over 90 days.

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

Coles Group  vs.  Liontown Resources

Coles Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coles Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Coles is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Liontown Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liontown Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Liontown Resources is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coles and Liontown Resources

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

The idea behind Coles Group and Liontown 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.