Correlation Between Lepanto Consolidated and Basic Energy

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

By analyzing existing cross correlation between Lepanto Consolidated Mining and Basic Energy Corp, you can compare the effects of market volatilities on Lepanto Consolidated and Basic Energy 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 Lepanto Consolidated with a short position of Basic Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lepanto Consolidated and Basic Energy.

Diversification Opportunities for Lepanto Consolidated and Basic Energy

0.17

Correlation Coefficient

Lepanto Consolidated  Basic Energy

Average diversification

The 3 months correlation between Lepanto and Basic is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Lepanto Consolidated Mining and Basic Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Energy Corp and Lepanto Consolidated 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 Lepanto Consolidated Mining are associated (or correlated) with Basic Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Energy Corp has no effect on the direction of Lepanto Consolidated i.e., Lepanto Consolidated and Basic Energy go up and down completely randomly.

Pair Corralation between Lepanto Consolidated and Basic Energy

Assuming the 90 days trading horizon Lepanto Consolidated Mining is expected to generate 1.03 times more return on investment than Basic Energy. However, Lepanto Consolidated is 1.03 times more volatile than Basic Energy Corp. It trades about 0.0 of its potential returns per unit of risk. Basic Energy Corp is currently generating about -0.04 per unit of risk. If you would invest  7.70  in Lepanto Consolidated Mining on October 24, 2024 and sell it today you would lose (1.10) from holding Lepanto Consolidated Mining or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.1%
Values	Daily Returns

Lepanto Consolidated Mining  vs.  Basic Energy Corp

Lepanto Consolidated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lepanto Consolidated Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Basic Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Basic Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lepanto Consolidated and Basic Energy

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

The idea behind Lepanto Consolidated Mining and Basic Energy Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.