Correlation Between Kraken Energy and Lotus Resources

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

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

Diversification Opportunities for Kraken Energy and Lotus Resources

0.74

Correlation Coefficient

Kraken Energy  Lotus Resources

Poor diversification

The 3 months correlation between Kraken and Lotus is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Kraken Energy 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 Kraken 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 Kraken Energy 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 Kraken Energy i.e., Kraken Energy and Lotus Resources go up and down completely randomly.

Pair Corralation between Kraken Energy and Lotus Resources

Assuming the 90 days horizon Kraken Energy Corp is expected to generate 2.64 times more return on investment than Lotus Resources. However, Kraken Energy is 2.64 times more volatile than Lotus Resources Limited. It trades about 0.03 of its potential returns per unit of risk. Lotus Resources Limited is currently generating about 0.0 per unit of risk. If you would invest  2.00  in Kraken Energy Corp on December 29, 2024 and sell it today you would lose (0.40) from holding Kraken Energy Corp or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Kraken Energy Corp  vs.  Lotus Resources Limited

Kraken Energy Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kraken Energy Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kraken Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Lotus Resources

Risk-Adjusted Performance

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 nearly stable basic indicators, Lotus 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 Kraken Energy and Lotus Resources

The main advantage of trading using opposite Kraken Energy and Lotus Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kraken Energy 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 Kraken Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.