Correlation Between Northern Star and Lake Resources

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

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

Diversification Opportunities for Northern Star and Lake Resources

-0.59

Correlation Coefficient

Northern Star  Lake Resources

Excellent diversification

The 3 months correlation between Northern and Lake is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources 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 Northern Star 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 Northern Star Resources 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 Northern Star i.e., Northern Star and Lake Resources go up and down completely randomly.

Pair Corralation between Northern Star and Lake Resources

Assuming the 90 days trading horizon Northern Star Resources is expected to generate 0.42 times more return on investment than Lake Resources. However, Northern Star Resources is 2.37 times less risky than Lake Resources. It trades about 0.15 of its potential returns per unit of risk. Lake Resources NL is currently generating about -0.07 per unit of risk. If you would invest  1,538  in Northern Star Resources on December 27, 2024 and sell it today you would earn a total of  242.00  from holding Northern Star Resources or generate 15.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Northern Star Resources  vs.  Lake Resources NL

Northern Star Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Northern Star unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Northern Star and Lake Resources

The main advantage of trading using opposite Northern Star and Lake Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Star 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 Northern Star Resources 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.