Correlation Between Iron Road and Lithium Australia
Can any of the company-specific risk be diversified away by investing in both Iron Road 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 Iron Road and Lithium Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iron Road and Lithium Australia NL, you can compare the effects of market volatilities on Iron Road 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 Iron Road with a short position of Lithium Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Lithium Australia.
Diversification Opportunities for Iron Road and Lithium Australia
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Iron and Lithium is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Iron Road 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 Iron Road 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 Iron Road i.e., Iron Road and Lithium Australia go up and down completely randomly.
Pair Corralation between Iron Road and Lithium Australia
Assuming the 90 days trading horizon Iron Road is expected to generate 0.78 times more return on investment than Lithium Australia. However, Iron Road is 1.28 times less risky than Lithium Australia. It trades about -0.02 of its potential returns per unit of risk. Lithium Australia NL is currently generating about -0.02 per unit of risk. If you would invest 13.00 in Iron Road on September 4, 2024 and sell it today you would lose (6.80) from holding Iron Road or give up 52.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Iron Road vs. Lithium Australia NL
Performance |
| Timeline |
| Iron Road |
| Lithium Australia |
Iron Road and Lithium Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iron Road and Lithium Australia
The main advantage of trading using opposite Iron Road and Lithium Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road 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.| Iron Road vs. Northern Star Resources | Iron Road vs. Evolution Mining | Iron Road vs. Bluescope Steel | Iron Road vs. Sandfire Resources NL |
| Lithium Australia vs. Advanced Braking Technology | Lithium Australia vs. Genetic Technologies | Lithium Australia vs. Thorney Technologies | Lithium Australia vs. Energy Technologies Limited |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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