Correlation Between Lion One and NEXTDC

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

Diversification Opportunities for Lion One and NEXTDC

0.58

Correlation Coefficient

Lion One  NEXTDC

Very weak diversification

The 3 months correlation between Lion and NEXTDC is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Lion One Metals and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Lion One i.e., Lion One and NEXTDC go up and down completely randomly.

Pair Corralation between Lion One and NEXTDC

Assuming the 90 days horizon Lion One Metals is expected to under-perform the NEXTDC. In addition to that, Lion One is 1.48 times more volatile than NEXTDC LTD. It trades about -0.18 of its total potential returns per unit of risk. NEXTDC LTD is currently generating about -0.16 per unit of volatility. If you would invest  990.00  in NEXTDC LTD on September 18, 2024 and sell it today you would lose (100.00) from holding NEXTDC LTD or give up 10.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Lion One Metals  vs.  NEXTDC LTD

Lion One Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion One Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NEXTDC LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEXTDC LTD 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 Lion One and NEXTDC

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

The idea behind Lion One Metals and NEXTDC LTD 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.