Correlation Between New Energy and Lake Resources

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Can any of the company-specific risk be diversified away by investing in both New Energy 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 New Energy and Lake Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Energy Metals and Lake Resources NL, you can compare the effects of market volatilities on New Energy 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 New Energy with a short position of Lake Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Energy and Lake Resources.

Diversification Opportunities for New Energy and Lake Resources

NewLakeDiversified AwayNewLakeDiversified Away100%
-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between New and Lake is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding New Energy Metals 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 New Energy 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 New Energy Metals 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 New Energy i.e., New Energy and Lake Resources go up and down completely randomly.

Pair Corralation between New Energy and Lake Resources

Assuming the 90 days horizon New Energy Metals is expected to under-perform the Lake Resources. In addition to that, New Energy is 2.76 times more volatile than Lake Resources NL. It trades about -0.22 of its total potential returns per unit of risk. Lake Resources NL is currently generating about 0.02 per unit of volatility. If you would invest  2.75  in Lake Resources NL on November 22, 2024 and sell it today you would lose (0.05) from holding Lake Resources NL or give up 1.82% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

New Energy Metals  vs.  Lake Resources NL

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 02004006008001,000
JavaScript chart by amCharts 3.21.15NRGYF LLKKF
       Timeline  
New Energy Metals 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in New Energy Metals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Energy reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.025000000000000030.050.10.150.20.250.3
Lake Resources NL 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Lake Resources NL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.0250.030.0350.04

New Energy and Lake Resources Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-413.38-309.6-205.82-102.050.0105.35214.34323.32432.31541.29 0.0020.0040.0060.0080.010
JavaScript chart by amCharts 3.21.15NRGYF LLKKF
       Returns  

Pair Trading with New Energy and Lake Resources

The main advantage of trading using opposite New Energy and Lake Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Energy 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 New Energy Metals 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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