Correlation Between Latin Metals and Lithium Australia
Can any of the company-specific risk be diversified away by investing in both Latin Metals 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 Latin Metals and Lithium Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Latin Metals and Lithium Australia NL, you can compare the effects of market volatilities on Latin Metals 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 Latin Metals with a short position of Lithium Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Latin Metals and Lithium Australia.
Diversification Opportunities for Latin Metals and Lithium Australia
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Latin and Lithium is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Latin Metals and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Latin Metals 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 Latin Metals 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 Latin Metals i.e., Latin Metals and Lithium Australia go up and down completely randomly.
Pair Corralation between Latin Metals and Lithium Australia
Assuming the 90 days horizon Latin Metals is expected to under-perform the Lithium Australia. But the otc stock apears to be less risky and, when comparing its historical volatility, Latin Metals is 2.81 times less risky than Lithium Australia. The otc stock trades about -0.08 of its potential returns per unit of risk. The Lithium Australia NL is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 0.78 in Lithium Australia NL on September 1, 2024 and sell it today you would lose (0.08) from holding Lithium Australia NL or give up 10.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Latin Metals vs. Lithium Australia NL
Performance |
| Timeline |
| Latin Metals |
| Lithium Australia |
Latin Metals and Lithium Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Latin Metals and Lithium Australia
The main advantage of trading using opposite Latin Metals and Lithium Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Latin Metals 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.| Latin Metals vs. ATT Inc | Latin Metals vs. Merck Company | Latin Metals vs. Walt Disney | Latin Metals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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