Correlation Between Lithium Australia and Liontown Resources
Can any of the company-specific risk be diversified away by investing in both Lithium Australia and Liontown Resources 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 Lithium Australia and Liontown Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lithium Australia NL and Liontown Resources Limited, you can compare the effects of market volatilities on Lithium Australia and Liontown Resources 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 Lithium Australia with a short position of Liontown Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Australia and Liontown Resources.
Diversification Opportunities for Lithium Australia and Liontown Resources
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Lithium and Liontown is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Australia NL and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Lithium Australia 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 Lithium Australia NL are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Lithium Australia i.e., Lithium Australia and Liontown Resources go up and down completely randomly.
Pair Corralation between Lithium Australia and Liontown Resources
Assuming the 90 days horizon Lithium Australia NL is expected to generate 25.39 times more return on investment than Liontown Resources. However, Lithium Australia is 25.39 times more volatile than Liontown Resources Limited. It trades about 0.11 of its potential returns per unit of risk. Liontown Resources Limited is currently generating about 0.07 per unit of risk. If you would invest 0.79 in Lithium Australia NL on September 2, 2024 and sell it today you would lose (0.09) from holding Lithium Australia NL or give up 11.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lithium Australia NL vs. Liontown Resources Limited
Performance |
| Timeline |
| Lithium Australia |
| Liontown Resources |
Lithium Australia and Liontown Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lithium Australia and Liontown Resources
The main advantage of trading using opposite Lithium Australia and Liontown Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithium Australia position performs unexpectedly, Liontown Resources 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 Liontown Resources will offset losses from the drop in Liontown Resources' long position.| Lithium Australia vs. ATT Inc | Lithium Australia vs. Merck Company | Lithium Australia vs. Walt Disney | Lithium Australia vs. Caterpillar |
| Liontown Resources vs. Sayona Mining Limited | Liontown Resources vs. Core Lithium | Liontown Resources vs. Critical Elements | Liontown Resources vs. South32 ADR |
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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