Correlation Between Lake Resources and Pilbara Minerals

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

Diversification Opportunities for Lake Resources and Pilbara Minerals

0.46

Correlation Coefficient

Lake Resources  Pilbara Minerals

Very weak diversification

The 3 months correlation between Lake and Pilbara is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals 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 Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Lake Resources i.e., Lake Resources and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Lake Resources and Pilbara Minerals

Assuming the 90 days horizon Lake Resources NL is expected to generate 2.51 times more return on investment than Pilbara Minerals. However, Lake Resources is 2.51 times more volatile than Pilbara Minerals Limited. It trades about 0.02 of its potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.04 per unit of risk. If you would invest  2.59  in Lake Resources NL on December 29, 2024 and sell it today you would lose (0.27) from holding Lake Resources NL or give up 10.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Lake Resources NL  vs.  Pilbara Minerals Limited

Lake Resources NL

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, Lake Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pilbara Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lake Resources and Pilbara Minerals

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

The idea behind Lake Resources NL and Pilbara Minerals 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.