Correlation Between Lake Resources and Nova Lithium

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

Diversification Opportunities for Lake Resources and Nova Lithium

0.59

Correlation Coefficient

Lake Resources  Nova Lithium

Very weak diversification

The 3 months correlation between Lake and Nova is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp 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 Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of Lake Resources i.e., Lake Resources and Nova Lithium go up and down completely randomly.

Pair Corralation between Lake Resources and Nova Lithium

Assuming the 90 days horizon Lake Resources NL is expected to generate 0.8 times more return on investment than Nova Lithium. However, Lake Resources NL is 1.24 times less risky than Nova Lithium. It trades about 0.01 of its potential returns per unit of risk. Nova Lithium Corp is currently generating about -0.05 per unit of risk. If you would invest  2.63  in Lake Resources NL on December 27, 2024 and sell it today you would lose (0.38) from holding Lake Resources NL or give up 14.45% of portfolio value over 90 days.

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

Lake Resources NL  vs.  Nova Lithium Corp

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.

Nova Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nova Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lake Resources and Nova Lithium

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

The idea behind Lake Resources NL and Nova Lithium 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.