Correlation Between Focus Graphite and Lake Resources

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

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

Diversification Opportunities for Focus Graphite and Lake Resources

0.27

Correlation Coefficient

Focus Graphite  Lake Resources

Modest diversification

The 3 months correlation between Focus and Lake is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Focus Graphite and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL and Focus Graphite 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 Focus Graphite are associated (or correlated) with Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Focus Graphite i.e., Focus Graphite and Lake Resources go up and down completely randomly.

Pair Corralation between Focus Graphite and Lake Resources

Assuming the 90 days horizon Focus Graphite is expected to generate 0.89 times more return on investment than Lake Resources. However, Focus Graphite is 1.12 times less risky than Lake Resources. It trades about -0.01 of its potential returns per unit of risk. Lake Resources NL is currently generating about -0.01 per unit of risk. If you would invest  17.00  in Focus Graphite on October 4, 2024 and sell it today you would lose (11.79) from holding Focus Graphite or give up 69.35% of portfolio value over 90 days.

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

Focus Graphite  vs.  Lake Resources NL

Focus Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Focus Graphite is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lake Resources NL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Graphite and Lake Resources

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

The idea behind Focus Graphite and Lake Resources NL 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.