Correlation Between Core Lithium and Standard Lithium
Can any of the company-specific risk be diversified away by investing in both Core Lithium and Standard Lithium 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 Core Lithium and Standard Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Core Lithium and Standard Lithium, you can compare the effects of market volatilities on Core Lithium and Standard Lithium 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 Core Lithium with a short position of Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Lithium and Standard Lithium.
Diversification Opportunities for Core Lithium and Standard Lithium
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Core and Standard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Core Lithium 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 Core Lithium are associated (or correlated) with Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Core Lithium i.e., Core Lithium and Standard Lithium go up and down completely randomly.
Pair Corralation between Core Lithium and Standard Lithium
Assuming the 90 days horizon Core Lithium is expected to under-perform the Standard Lithium. In addition to that, Core Lithium is 3.22 times more volatile than Standard Lithium. It trades about -0.1 of its total potential returns per unit of risk. Standard Lithium is currently generating about -0.17 per unit of volatility. If you would invest 196.00 in Standard Lithium on September 13, 2024 and sell it today you would lose (34.00) from holding Standard Lithium or give up 17.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Core Lithium vs. Standard Lithium
Performance |
| Timeline |
| Core Lithium |
| Standard Lithium |
Core Lithium and Standard Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Core Lithium and Standard Lithium
The main advantage of trading using opposite Core Lithium and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Lithium position performs unexpectedly, Standard Lithium 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 Standard Lithium will offset losses from the drop in Standard Lithium's long position.| Core Lithium vs. Qubec Nickel Corp | Core Lithium vs. IGO Limited | Core Lithium vs. Focus Graphite | Core Lithium vs. Mineral Res |
| Standard Lithium vs. MP Materials Corp | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Vale SA ADR | Standard Lithium vs. Vizsla Resources Corp |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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