Correlation Between Critical Elements and Searchlight Resources

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

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

Diversification Opportunities for Critical Elements and Searchlight Resources

-0.15

Correlation Coefficient

Critical Elements  Searchlight Resources

Good diversification

The 3 months correlation between Critical and Searchlight is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Critical Elements and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources and Critical Elements 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 Critical Elements are associated (or correlated) with Searchlight Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Searchlight Resources has no effect on the direction of Critical Elements i.e., Critical Elements and Searchlight Resources go up and down completely randomly.

Pair Corralation between Critical Elements and Searchlight Resources

Assuming the 90 days horizon Critical Elements is expected to under-perform the Searchlight Resources. But the otc stock apears to be less risky and, when comparing its historical volatility, Critical Elements is 4.89 times less risky than Searchlight Resources. The otc stock trades about -0.12 of its potential returns per unit of risk. The Searchlight Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.72  in Searchlight Resources on October 12, 2024 and sell it today you would lose (0.09) from holding Searchlight Resources or give up 12.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Critical Elements  vs.  Searchlight Resources

Critical Elements

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Critical Elements has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Searchlight Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Searchlight Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Searchlight Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Critical Elements and Searchlight Resources

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

The idea behind Critical Elements and Searchlight 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.