Correlation Between Lake Resources and Arizona Lithium

Can any of the company-specific risk be diversified away by investing in both Lake Resources and Arizona Lithium 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 Arizona Lithium 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 Arizona Lithium Limited, you can compare the effects of market volatilities on Lake Resources and Arizona Lithium 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 Arizona Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lake Resources and Arizona Lithium.

Diversification Opportunities for Lake Resources and Arizona Lithium

0.19

Correlation Coefficient

Lake Resources  Arizona Lithium

Average diversification

The 3 months correlation between Lake and Arizona is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and Arizona Lithium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arizona Lithium 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 Arizona Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arizona Lithium has no effect on the direction of Lake Resources i.e., Lake Resources and Arizona Lithium go up and down completely randomly.

Pair Corralation between Lake Resources and Arizona Lithium

Assuming the 90 days horizon Lake Resources NL is expected to under-perform the Arizona Lithium. But the otc stock apears to be less risky and, when comparing its historical volatility, Lake Resources NL is 3.88 times less risky than Arizona Lithium. The otc stock trades about -0.01 of its potential returns per unit of risk. The Arizona Lithium Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.17  in Arizona Lithium Limited on December 1, 2024 and sell it today you would lose (0.34) from holding Arizona Lithium Limited or give up 29.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Lake Resources NL  vs.  Arizona Lithium Limited

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.

Arizona Lithium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lake Resources and Arizona Lithium

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

The idea behind Lake Resources NL and Arizona Lithium Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.