Correlation Between AKITA Drilling and Lotus Resources

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

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

Diversification Opportunities for AKITA Drilling and Lotus Resources

-0.62

Correlation Coefficient

AKITA Drilling  Lotus Resources

Excellent diversification

The 3 months correlation between AKITA and Lotus is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding AKITA Drilling and Lotus Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Resources and AKITA Drilling 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 AKITA Drilling 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 AKITA Drilling i.e., AKITA Drilling and Lotus Resources go up and down completely randomly.

Pair Corralation between AKITA Drilling and Lotus Resources

Assuming the 90 days horizon AKITA Drilling is expected to under-perform the Lotus Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, AKITA Drilling is 1.48 times less risky than Lotus Resources. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Lotus Resources Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Lotus Resources Limited on March 12, 2024 and sell it today you would lose (2.00) from holding Lotus Resources Limited or give up 6.9% of portfolio value over 90 days.

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

AKITA Drilling  vs.  Lotus Resources Limited

AKITA Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AKITA Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lotus Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Resources Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Lotus Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AKITA Drilling and Lotus Resources

The main advantage of trading using opposite AKITA Drilling and Lotus Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AKITA Drilling 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 AKITA Drilling 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..