Correlation Between Lion One and IXE Select

Can any of the company-specific risk be diversified away by investing in both Lion One and IXE Select 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 Lion One and IXE Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lion One Metals and IXE Select Sector, you can compare the effects of market volatilities on Lion One and IXE Select 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 Lion One with a short position of IXE Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lion One and IXE Select.

Diversification Opportunities for Lion One and IXE Select

0.32

Correlation Coefficient

Lion One  IXE Select

Weak diversification

The 3 months correlation between Lion and IXE is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lion One Metals and IXE Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IXE Select Sector and Lion One 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 Lion One Metals are associated (or correlated) with IXE Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IXE Select Sector has no effect on the direction of Lion One i.e., Lion One and IXE Select go up and down completely randomly.

Pair Corralation between Lion One and IXE Select

Assuming the 90 days horizon Lion One Metals is expected to under-perform the IXE Select. In addition to that, Lion One is 3.21 times more volatile than IXE Select Sector. It trades about -0.09 of its total potential returns per unit of risk. IXE Select Sector is currently generating about -0.06 per unit of volatility. If you would invest  95,875  in IXE Select Sector on October 8, 2024 and sell it today you would lose (4,091) from holding IXE Select Sector or give up 4.27% of portfolio value over 90 days.

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

Lion One Metals  vs.  IXE Select Sector

Pair Trading with Lion One and IXE Select

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

The idea behind Lion One Metals and IXE Select Sector 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.