Correlation Between LION ONE and Vestas Wind

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

By analyzing existing cross correlation between LION ONE METALS and Vestas Wind Systems, you can compare the effects of market volatilities on LION ONE and Vestas Wind 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 LION ONE with a short position of Vestas Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of LION ONE and Vestas Wind.

Diversification Opportunities for LION ONE and Vestas Wind

0.06

Correlation Coefficient

LION ONE  Vestas Wind

Significant diversification

The 3 months correlation between LION and Vestas is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding LION ONE METALS and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems and LION ONE 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 LION ONE METALS are associated (or correlated) with Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of LION ONE i.e., LION ONE and Vestas Wind go up and down completely randomly.

Pair Corralation between LION ONE and Vestas Wind

Assuming the 90 days trading horizon LION ONE METALS is expected to generate 1.32 times more return on investment than Vestas Wind. However, LION ONE is 1.32 times more volatile than Vestas Wind Systems. It trades about -0.02 of its potential returns per unit of risk. Vestas Wind Systems is currently generating about -0.15 per unit of risk. If you would invest  20.00  in LION ONE METALS on September 4, 2024 and sell it today you would lose (2.00) from holding LION ONE METALS or give up 10.0% of portfolio value over 90 days.

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

LION ONE METALS  vs.  Vestas Wind Systems

LION ONE METALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LION ONE METALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LION ONE is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with LION ONE and Vestas Wind

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

The idea behind LION ONE METALS and Vestas Wind Systems 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.