Correlation Between Transition Metals and Lotus Resources

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

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

Diversification Opportunities for Transition Metals and Lotus Resources

0.61

Correlation Coefficient

Transition Metals  Lotus Resources

Poor diversification

The 3 months correlation between Transition and Lotus is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Transition Metals Corp and Lotus Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Resources and Transition Metals 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 Transition Metals Corp are associated (or correlated) with Lotus Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Resources has no effect on the direction of Transition Metals i.e., Transition Metals and Lotus Resources go up and down completely randomly.

Pair Corralation between Transition Metals and Lotus Resources

Assuming the 90 days horizon Transition Metals Corp is expected to generate 2.84 times more return on investment than Lotus Resources. However, Transition Metals is 2.84 times more volatile than Lotus Resources Limited. It trades about 0.05 of its potential returns per unit of risk. Lotus Resources Limited is currently generating about 0.03 per unit of risk. If you would invest  5.49  in Transition Metals Corp on September 13, 2024 and sell it today you would lose (2.29) from holding Transition Metals Corp or give up 41.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Transition Metals Corp  vs.  Lotus Resources Limited

Transition Metals Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transition Metals Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Transition Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lotus Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotus Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Transition Metals and Lotus Resources

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

The idea behind Transition Metals Corp and Lotus Resources Limited 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.