Correlation Between Lake Resources and Tearlach Resources

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

Diversification Opportunities for Lake Resources and Tearlach Resources

0.16

Correlation Coefficient

Lake Resources  Tearlach Resources

Average diversification

The 3 months correlation between Lake and Tearlach is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and Tearlach Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tearlach Resources 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 Tearlach Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tearlach Resources has no effect on the direction of Lake Resources i.e., Lake Resources and Tearlach Resources go up and down completely randomly.

Pair Corralation between Lake Resources and Tearlach Resources

Assuming the 90 days horizon Lake Resources is expected to generate 3.06 times less return on investment than Tearlach Resources. But when comparing it to its historical volatility, Lake Resources NL is 1.58 times less risky than Tearlach Resources. It trades about 0.07 of its potential returns per unit of risk. Tearlach Resources Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1.32  in Tearlach Resources Limited on September 4, 2024 and sell it today you would earn a total of  0.98  from holding Tearlach Resources Limited or generate 74.24% return on investment over 90 days.

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

Lake Resources NL  vs.  Tearlach Resources Limited

Lake Resources NL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Tearlach Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tearlach Resources Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical indicators, Tearlach Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lake Resources and Tearlach Resources

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

The idea behind Lake Resources NL and Tearlach Resources 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.