Correlation Between China Gold and Lucara Diamond

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

By analyzing existing cross correlation between China Gold International and Lucara Diamond Corp, you can compare the effects of market volatilities on China Gold and Lucara Diamond 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 China Gold with a short position of Lucara Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Gold and Lucara Diamond.

Diversification Opportunities for China Gold and Lucara Diamond

-0.92

Correlation Coefficient

China Gold  Lucara Diamond

Pay attention - limited upside

The 3 months correlation between China and Lucara is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding China Gold International and Lucara Diamond Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucara Diamond Corp and China Gold 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 China Gold International are associated (or correlated) with Lucara Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucara Diamond Corp has no effect on the direction of China Gold i.e., China Gold and Lucara Diamond go up and down completely randomly.

Pair Corralation between China Gold and Lucara Diamond

Assuming the 90 days trading horizon China Gold International is expected to under-perform the Lucara Diamond. But the stock apears to be less risky and, when comparing its historical volatility, China Gold International is 1.24 times less risky than Lucara Diamond. The stock trades about -0.09 of its potential returns per unit of risk. The Lucara Diamond Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Lucara Diamond Corp on January 26, 2024 and sell it today you would lose (1.00) from holding Lucara Diamond Corp or give up 3.12% of portfolio value over 90 days.

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

China Gold International  vs.  Lucara Diamond Corp

China Gold International

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Gold International are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, China Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Lucara Diamond Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucara Diamond Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with China Gold and Lucara Diamond

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

The idea behind China Gold International and Lucara Diamond Corp 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.