Correlation Between Lion One and Western Sierra

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

Diversification Opportunities for Lion One and Western Sierra

0.12

Correlation Coefficient

Lion One  Western Sierra

Average diversification

The 3 months correlation between Lion and Western is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Lion One Metals and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining 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 Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of Lion One i.e., Lion One and Western Sierra go up and down completely randomly.

Pair Corralation between Lion One and Western Sierra

Assuming the 90 days horizon Lion One is expected to generate 22.81 times less return on investment than Western Sierra. But when comparing it to its historical volatility, Lion One Metals is 20.53 times less risky than Western Sierra. It trades about 0.1 of its potential returns per unit of risk. Western Sierra Mining is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.35  in Western Sierra Mining on December 29, 2024 and sell it today you would lose (0.33) from holding Western Sierra Mining or give up 94.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Lion One Metals  vs.  Western Sierra Mining

Lion One Metals

Risk-Adjusted Performance

OK

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

Western Sierra Mining

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Sierra Mining are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Western Sierra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lion One and Western Sierra

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

The idea behind Lion One Metals and Western Sierra Mining 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.