Correlation Between Liontown Resources and Searchlight Resources

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

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

Diversification Opportunities for Liontown Resources and Searchlight Resources

-0.46

Correlation Coefficient

Liontown Resources  Searchlight Resources

Very good diversification

The 3 months correlation between Liontown and Searchlight is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources and Liontown Resources 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 Liontown Resources Limited 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 Liontown Resources i.e., Liontown Resources and Searchlight Resources go up and down completely randomly.

Pair Corralation between Liontown Resources and Searchlight Resources

Assuming the 90 days horizon Liontown Resources Limited is expected to under-perform the Searchlight Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Liontown Resources Limited is 6.3 times less risky than Searchlight Resources. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Searchlight Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.51  in Searchlight Resources on October 27, 2024 and sell it today you would earn a total of  0.39  from holding Searchlight Resources or generate 76.47% return on investment over 90 days.

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

Liontown Resources Limited  vs.  Searchlight Resources

Liontown Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liontown Resources Limited 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 basic 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

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Searchlight Resources are ranked lower than 11 (%) 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 Liontown Resources and Searchlight Resources

The main advantage of trading using opposite Liontown Resources and Searchlight Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liontown Resources 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 Liontown Resources Limited 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.