Correlation Between Lake Resources and American Rare

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

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

Diversification Opportunities for Lake Resources and American Rare

-0.09

Correlation Coefficient

Lake Resources  American Rare

Good diversification

The 3 months correlation between Lake and American is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths and Lake 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 Lake Resources NL are associated (or correlated) with American Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of Lake Resources i.e., Lake Resources and American Rare go up and down completely randomly.

Pair Corralation between Lake Resources and American Rare

Assuming the 90 days horizon Lake Resources NL is expected to under-perform the American Rare. In addition to that, Lake Resources is 2.05 times more volatile than American Rare Earths. It trades about -0.01 of its total potential returns per unit of risk. American Rare Earths is currently generating about 0.06 per unit of volatility. If you would invest  18.00  in American Rare Earths on December 2, 2024 and sell it today you would earn a total of  1.00  from holding American Rare Earths or generate 5.56% return on investment over 90 days.

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

Lake Resources NL  vs.  American Rare Earths

Lake Resources NL

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lake Resources NL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Lake Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American Rare Earths

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Rare Earths are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lake Resources and American Rare

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

The idea behind Lake Resources NL and American Rare Earths 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.