Correlation Between POWR Lithium and Lake Resources

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

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

Diversification Opportunities for POWR Lithium and Lake Resources

0.34

Correlation Coefficient

POWR Lithium  Lake Resources

Weak diversification

The 3 months correlation between POWR and Lake is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding POWR Lithium Corp 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 POWR Lithium 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 POWR Lithium Corp 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 POWR Lithium i.e., POWR Lithium and Lake Resources go up and down completely randomly.

Pair Corralation between POWR Lithium and Lake Resources

Assuming the 90 days horizon POWR Lithium Corp is expected to generate 2.85 times more return on investment than Lake Resources. However, POWR Lithium is 2.85 times more volatile than Lake Resources NL. It trades about 0.12 of its potential returns per unit of risk. Lake Resources NL is currently generating about 0.01 per unit of risk. If you would invest  3.40  in POWR Lithium Corp on December 27, 2024 and sell it today you would earn a total of  0.72  from holding POWR Lithium Corp or generate 21.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

POWR Lithium Corp  vs.  Lake Resources NL

POWR Lithium Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in POWR Lithium Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, POWR Lithium reported 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. Despite nearly stable forward-looking signals, Lake 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 POWR Lithium and Lake Resources

The main advantage of trading using opposite POWR Lithium and Lake Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POWR Lithium 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 POWR Lithium Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.