Correlation Between Leading Edge and Lithium Australia
Can any of the company-specific risk be diversified away by investing in both Leading Edge 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 Leading Edge and Lithium Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leading Edge Materials and Lithium Australia NL, you can compare the effects of market volatilities on Leading Edge 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 Leading Edge with a short position of Lithium Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leading Edge and Lithium Australia.
Diversification Opportunities for Leading Edge and Lithium Australia
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Leading and Lithium is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Leading Edge 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 Leading Edge Materials 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 Leading Edge i.e., Leading Edge and Lithium Australia go up and down completely randomly.
Pair Corralation between Leading Edge and Lithium Australia
Assuming the 90 days horizon Leading Edge Materials is expected to under-perform the Lithium Australia. But the otc stock apears to be less risky and, when comparing its historical volatility, Leading Edge Materials is 2.65 times less risky than Lithium Australia. The otc stock trades about -0.04 of its potential returns per unit of risk. The Lithium Australia NL is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1.40 in Lithium Australia NL on August 29, 2024 and sell it today you would lose (0.25) from holding Lithium Australia NL or give up 17.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Leading Edge Materials vs. Lithium Australia NL
Performance |
| Timeline |
| Leading Edge Materials |
| Lithium Australia |
Leading Edge and Lithium Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leading Edge and Lithium Australia
The main advantage of trading using opposite Leading Edge and Lithium Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leading Edge 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.| Leading Edge vs. Grid Metals Corp | Leading Edge vs. Fireweed Zinc | Leading Edge vs. First American Silver | Leading Edge vs. Australian Strategic Materials |
| Lithium Australia vs. Grid Metals Corp | Lithium Australia vs. Latin Metals | Lithium Australia vs. First American Silver | Lithium Australia vs. IGO 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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