Correlation Between Major Drilling and Lake Resources

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

By analyzing existing cross correlation between Major Drilling Group and Lake Resources NL, you can compare the effects of market volatilities on Major Drilling and Lake 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 Major Drilling with a short position of Lake Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major Drilling and Lake Resources.

Diversification Opportunities for Major Drilling and Lake Resources

-0.02

Correlation Coefficient

Major Drilling  Lake Resources

Good diversification

The 3 months correlation between Major and Lake is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL and Major Drilling 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 Major Drilling Group are associated (or correlated) with Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Major Drilling i.e., Major Drilling and Lake Resources go up and down completely randomly.

Pair Corralation between Major Drilling and Lake Resources

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the Lake Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 2.81 times less risky than Lake Resources. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Lake Resources NL is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2.70  in Lake Resources NL on December 19, 2024 and sell it today you would lose (0.50) from holding Lake Resources NL or give up 18.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Major Drilling Group  vs.  Lake Resources NL

Major Drilling Group

Risk-Adjusted Performance

Very Weak

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

Lake Resources NL

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Major Drilling and Lake Resources

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

The idea behind Major Drilling Group and Lake Resources NL 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.