Correlation Between Lucara Diamond and Thunder Mountain

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

Diversification Opportunities for Lucara Diamond and Thunder Mountain

0.05

Correlation Coefficient

Lucara Diamond  Thunder Mountain

Significant diversification

The 3 months correlation between Lucara and Thunder is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Lucara Diamond Corp and Thunder Mountain Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thunder Mountain Gold 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 Thunder Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thunder Mountain Gold has no effect on the direction of Lucara Diamond i.e., Lucara Diamond and Thunder Mountain go up and down completely randomly.

Pair Corralation between Lucara Diamond and Thunder Mountain

Assuming the 90 days horizon Lucara Diamond is expected to generate 10.56 times less return on investment than Thunder Mountain. But when comparing it to its historical volatility, Lucara Diamond Corp is 2.46 times less risky than Thunder Mountain. It trades about 0.02 of its potential returns per unit of risk. Thunder Mountain Gold is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Thunder Mountain Gold on October 3, 2024 and sell it today you would earn a total of  7.00  from holding Thunder Mountain Gold or generate 175.0% return on investment over 90 days.

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

Lucara Diamond Corp  vs.  Thunder Mountain Gold

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 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.

Thunder Mountain Gold

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thunder Mountain Gold are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating primary indicators, Thunder Mountain reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lucara Diamond and Thunder Mountain

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

The idea behind Lucara Diamond Corp and Thunder Mountain Gold 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.