Correlation Between Labrador Iron and Transition Metals

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

By analyzing existing cross correlation between Labrador Iron Ore and Transition Metals Corp, you can compare the effects of market volatilities on Labrador Iron and Transition Metals 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 Labrador Iron with a short position of Transition Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Labrador Iron and Transition Metals.

Diversification Opportunities for Labrador Iron and Transition Metals

0.33

Correlation Coefficient

Labrador Iron  Transition Metals

Weak diversification

The 3 months correlation between Labrador and Transition is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Transition Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transition Metals Corp and Labrador Iron 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 Labrador Iron Ore are associated (or correlated) with Transition Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transition Metals Corp has no effect on the direction of Labrador Iron i.e., Labrador Iron and Transition Metals go up and down completely randomly.

Pair Corralation between Labrador Iron and Transition Metals

Assuming the 90 days trading horizon Labrador Iron Ore is expected to generate 0.18 times more return on investment than Transition Metals. However, Labrador Iron Ore is 5.66 times less risky than Transition Metals. It trades about 0.3 of its potential returns per unit of risk. Transition Metals Corp is currently generating about -0.08 per unit of risk. If you would invest  2,895  in Labrador Iron Ore on October 26, 2024 and sell it today you would earn a total of  155.00  from holding Labrador Iron Ore or generate 5.35% return on investment over 90 days.

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

Labrador Iron Ore  vs.  Transition Metals Corp

Labrador Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Transition Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transition Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Labrador Iron and Transition Metals

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

The idea behind Labrador Iron Ore and Transition Metals 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.