Correlation Between Snow Lake and Northern Dynasty

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

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

Diversification Opportunities for Snow Lake and Northern Dynasty

0.67

Correlation Coefficient

Snow Lake  Northern Dynasty

Poor diversification

The 3 months correlation between Snow and Northern is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Snow Lake Resources and Northern Dynasty Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Dynasty Minerals and Snow Lake 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 Snow Lake Resources are associated (or correlated) with Northern Dynasty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Dynasty Minerals has no effect on the direction of Snow Lake i.e., Snow Lake and Northern Dynasty go up and down completely randomly.

Pair Corralation between Snow Lake and Northern Dynasty

Given the investment horizon of 90 days Snow Lake Resources is expected to under-perform the Northern Dynasty. In addition to that, Snow Lake is 1.93 times more volatile than Northern Dynasty Minerals. It trades about -0.42 of its total potential returns per unit of risk. Northern Dynasty Minerals is currently generating about -0.07 per unit of volatility. If you would invest  68.00  in Northern Dynasty Minerals on November 28, 2024 and sell it today you would lose (5.00) from holding Northern Dynasty Minerals or give up 7.35% of portfolio value over 90 days.

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

Snow Lake Resources  vs.  Northern Dynasty Minerals

Snow Lake Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Snow Lake Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Snow Lake displayed solid returns over the last few months and may actually be approaching a breakup point.

Northern Dynasty Minerals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Dynasty Minerals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Northern Dynasty disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Snow Lake and Northern Dynasty

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

The idea behind Snow Lake Resources and Northern Dynasty Minerals 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.