Correlation Between Lucara Diamond and Mountain Province

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

Diversification Opportunities for Lucara Diamond and Mountain Province

0.59

Correlation Coefficient

Lucara Diamond  Mountain Province

Very weak diversification

The 3 months correlation between Lucara and Mountain is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Lucara Diamond Corp and Mountain Province Diamonds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mountain Province 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 Mountain Province. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mountain Province has no effect on the direction of Lucara Diamond i.e., Lucara Diamond and Mountain Province go up and down completely randomly.

Pair Corralation between Lucara Diamond and Mountain Province

Assuming the 90 days horizon Lucara Diamond Corp is expected to under-perform the Mountain Province. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lucara Diamond Corp is 2.13 times less risky than Mountain Province. The pink sheet trades about -0.5 of its potential returns per unit of risk. The Mountain Province Diamonds is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Mountain Province Diamonds on October 17, 2024 and sell it today you would lose (2.00) from holding Mountain Province Diamonds or give up 16.67% 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.  Mountain Province Diamonds

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 weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Mountain Province

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mountain Province Diamonds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Lucara Diamond and Mountain Province

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

The idea behind Lucara Diamond Corp and Mountain Province Diamonds 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.

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.