Correlation Between Leading Edge and Lucara Diamond

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

By analyzing existing cross correlation between Leading Edge Materials and Lucara Diamond Corp, you can compare the effects of market volatilities on Leading Edge and Lucara Diamond 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 Leading Edge with a short position of Lucara Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leading Edge and Lucara Diamond.

Diversification Opportunities for Leading Edge and Lucara Diamond

-0.16

Correlation Coefficient

Leading Edge  Lucara Diamond

Good diversification

The 3 months correlation between Leading and Lucara is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Lucara Diamond Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucara Diamond Corp and Leading Edge 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 Leading Edge Materials are associated (or correlated) with Lucara Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucara Diamond Corp has no effect on the direction of Leading Edge i.e., Leading Edge and Lucara Diamond go up and down completely randomly.

Pair Corralation between Leading Edge and Lucara Diamond

Assuming the 90 days trading horizon Leading Edge Materials is expected to under-perform the Lucara Diamond. But the stock apears to be less risky and, when comparing its historical volatility, Leading Edge Materials is 1.19 times less risky than Lucara Diamond. The stock trades about -0.02 of its potential returns per unit of risk. The Lucara Diamond Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  338.00  in Lucara Diamond Corp on October 2, 2024 and sell it today you would lose (10.00) from holding Lucara Diamond Corp or give up 2.96% of portfolio value over 90 days.

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

Leading Edge Materials  vs.  Lucara Diamond Corp

Leading Edge Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lucara Diamond Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucara Diamond Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Lucara Diamond 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 Leading Edge and Lucara Diamond

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

The idea behind Leading Edge Materials and Lucara Diamond 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.