Correlation Between Bitterroot Resources and Lithium Australia
Can any of the company-specific risk be diversified away by investing in both Bitterroot Resources and Lithium Australia 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 Bitterroot Resources and Lithium Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bitterroot Resources and Lithium Australia NL, you can compare the effects of market volatilities on Bitterroot Resources and Lithium Australia 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 Bitterroot Resources with a short position of Lithium Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitterroot Resources and Lithium Australia.
Diversification Opportunities for Bitterroot Resources and Lithium Australia
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Bitterroot and Lithium is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Bitterroot Resources and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Bitterroot 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 Bitterroot Resources are associated (or correlated) with Lithium Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Australia has no effect on the direction of Bitterroot Resources i.e., Bitterroot Resources and Lithium Australia go up and down completely randomly.
Pair Corralation between Bitterroot Resources and Lithium Australia
Assuming the 90 days horizon Bitterroot Resources is expected to generate 4.53 times less return on investment than Lithium Australia. But when comparing it to its historical volatility, Bitterroot Resources is 5.16 times less risky than Lithium Australia. It trades about 0.09 of its potential returns per unit of risk. Lithium Australia NL is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1.80 in Lithium Australia NL on September 1, 2024 and sell it today you would lose (1.10) from holding Lithium Australia NL or give up 61.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.47% |
| Values | Daily Returns |
Bitterroot Resources vs. Lithium Australia NL
Performance |
| Timeline |
| Bitterroot Resources |
| Lithium Australia |
Bitterroot Resources and Lithium Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bitterroot Resources and Lithium Australia
The main advantage of trading using opposite Bitterroot Resources and Lithium Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitterroot Resources position performs unexpectedly, Lithium Australia 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 Lithium Australia will offset losses from the drop in Lithium Australia's long position.| Bitterroot Resources vs. ATT Inc | Bitterroot Resources vs. Merck Company | Bitterroot Resources vs. Walt Disney | Bitterroot Resources vs. Caterpillar |
| Lithium Australia vs. ATT Inc | Lithium Australia vs. Merck Company | Lithium Australia vs. Walt Disney | Lithium Australia vs. Caterpillar |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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