Correlation Between Lendlease and Northern Star

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

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

Diversification Opportunities for Lendlease and Northern Star

-0.36

Correlation Coefficient

Lendlease  Northern Star

Very good diversification

The 3 months correlation between Lendlease and Northern is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Lendlease Group and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources and Lendlease 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 Lendlease Group are associated (or correlated) with Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of Lendlease i.e., Lendlease and Northern Star go up and down completely randomly.

Pair Corralation between Lendlease and Northern Star

Assuming the 90 days trading horizon Lendlease is expected to generate 2.49 times less return on investment than Northern Star. But when comparing it to its historical volatility, Lendlease Group is 1.47 times less risky than Northern Star. It trades about 0.08 of its potential returns per unit of risk. Northern Star Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,487  in Northern Star Resources on September 3, 2024 and sell it today you would earn a total of  264.00  from holding Northern Star Resources or generate 17.75% return on investment over 90 days.

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

Lendlease Group  vs.  Northern Star Resources

Lendlease Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lendlease Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Lendlease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Northern Star Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 10 (%) 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.

Pair Trading with Lendlease and Northern Star

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

The idea behind Lendlease Group and Northern Star Resources 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.