Correlation Between Lake Resources and Rio Tinto

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

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

Diversification Opportunities for Lake Resources and Rio Tinto

-0.09

Correlation Coefficient

Lake Resources  Rio Tinto

Good diversification

The 3 months correlation between Lake and Rio is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Lake Resources NL and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and Lake Resources 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 Lake Resources NL are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of Lake Resources i.e., Lake Resources and Rio Tinto go up and down completely randomly.

Pair Corralation between Lake Resources and Rio Tinto

Assuming the 90 days horizon Lake Resources NL is expected to generate 4.57 times more return on investment than Rio Tinto. However, Lake Resources is 4.57 times more volatile than Rio Tinto Group. It trades about 0.06 of its potential returns per unit of risk. Rio Tinto Group is currently generating about -0.03 per unit of risk. If you would invest  2.45  in Lake Resources NL on September 22, 2024 and sell it today you would earn a total of  0.15  from holding Lake Resources NL or generate 6.12% return on investment over 90 days.

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

Lake Resources NL  vs.  Rio Tinto Group

Lake Resources NL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rio Tinto is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lake Resources and Rio Tinto

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

The idea behind Lake Resources NL and Rio Tinto Group 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.