Correlation Between Lucara Diamond and Focus Graphite

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

Diversification Opportunities for Lucara Diamond and Focus Graphite

0.57

Correlation Coefficient

Lucara Diamond  Focus Graphite

Very weak diversification

The 3 months correlation between Lucara and Focus is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Lucara Diamond Corp and Focus Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Graphite 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 Focus Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Graphite has no effect on the direction of Lucara Diamond i.e., Lucara Diamond and Focus Graphite go up and down completely randomly.

Pair Corralation between Lucara Diamond and Focus Graphite

Assuming the 90 days horizon Lucara Diamond Corp is expected to under-perform the Focus Graphite. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lucara Diamond Corp is 3.85 times less risky than Focus Graphite. The pink sheet trades about -0.34 of its potential returns per unit of risk. The Focus Graphite is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Focus Graphite on October 5, 2024 and sell it today you would lose (1.00) from holding Focus Graphite or give up 16.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Lucara Diamond Corp  vs.  Focus Graphite

Lucara Diamond Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucara Diamond Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Focus Graphite

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Graphite are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Focus Graphite may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Lucara Diamond and Focus Graphite

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

The idea behind Lucara Diamond Corp and Focus Graphite 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.