Correlation Between Lynas Rare and Zacapa Resources

Can any of the company-specific risk be diversified away by investing in both Lynas Rare and Zacapa Resources 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 Lynas Rare and Zacapa Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lynas Rare Earths and Zacapa Resources, you can compare the effects of market volatilities on Lynas Rare and Zacapa Resources 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 Lynas Rare with a short position of Zacapa Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lynas Rare and Zacapa Resources.

Diversification Opportunities for Lynas Rare and Zacapa Resources

0.64

Correlation Coefficient

Lynas Rare  Zacapa Resources

Poor diversification

The 3 months correlation between Lynas and Zacapa is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Lynas Rare Earths and Zacapa Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacapa Resources and Lynas Rare 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 Lynas Rare Earths are associated (or correlated) with Zacapa Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacapa Resources has no effect on the direction of Lynas Rare i.e., Lynas Rare and Zacapa Resources go up and down completely randomly.

Pair Corralation between Lynas Rare and Zacapa Resources

Assuming the 90 days horizon Lynas Rare Earths is expected to generate 0.27 times more return on investment than Zacapa Resources. However, Lynas Rare Earths is 3.77 times less risky than Zacapa Resources. It trades about -0.03 of its potential returns per unit of risk. Zacapa Resources is currently generating about -0.03 per unit of risk. If you would invest  641.00  in Lynas Rare Earths on October 27, 2024 and sell it today you would lose (231.00) from holding Lynas Rare Earths or give up 36.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	23.68%
Values	Daily Returns

Lynas Rare Earths  vs.  Zacapa Resources

Lynas Rare Earths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lynas Rare Earths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Zacapa Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zacapa Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Zacapa Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lynas Rare and Zacapa Resources

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

The idea behind Lynas Rare Earths and Zacapa Resources 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.