Correlation Between Lucara Diamond and Defiance Silver

Can any of the company-specific risk be diversified away by investing in both Lucara Diamond and Defiance Silver 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 Lucara Diamond and Defiance Silver into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lucara Diamond Corp and Defiance Silver Corp, you can compare the effects of market volatilities on Lucara Diamond and Defiance Silver 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 Lucara Diamond with a short position of Defiance Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lucara Diamond and Defiance Silver.

Diversification Opportunities for Lucara Diamond and Defiance Silver

0.4

Correlation Coefficient

Lucara Diamond  Defiance Silver

Very weak diversification

The 3 months correlation between Lucara and Defiance is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lucara Diamond Corp and Defiance Silver Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance Silver Corp and Lucara Diamond 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 Lucara Diamond Corp are associated (or correlated) with Defiance Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance Silver Corp has no effect on the direction of Lucara Diamond i.e., Lucara Diamond and Defiance Silver go up and down completely randomly.

Pair Corralation between Lucara Diamond and Defiance Silver

Assuming the 90 days horizon Lucara Diamond Corp is expected to under-perform the Defiance Silver. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lucara Diamond Corp is 2.44 times less risky than Defiance Silver. The pink sheet trades about -0.42 of its potential returns per unit of risk. The Defiance Silver Corp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Defiance Silver Corp on October 8, 2024 and sell it today you would lose (2.00) from holding Defiance Silver Corp or give up 11.76% of portfolio value over 90 days.

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

Lucara Diamond Corp  vs.  Defiance Silver Corp

Lucara Diamond Corp

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lucara Diamond Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lucara Diamond is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Defiance Silver Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defiance Silver Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators 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 Lucara Diamond and Defiance Silver

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

The idea behind Lucara Diamond Corp and Defiance Silver 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.