Correlation Between Sprott Uranium and Sprott Lithium
Can any of the company-specific risk be diversified away by investing in both Sprott Uranium and Sprott 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 Sprott Uranium and Sprott Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sprott Uranium Miners and Sprott Lithium Miners, you can compare the effects of market volatilities on Sprott Uranium and Sprott 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 Sprott Uranium with a short position of Sprott Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sprott Uranium and Sprott Lithium.
Diversification Opportunities for Sprott Uranium and Sprott Lithium
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sprott and Sprott is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Uranium Miners and Sprott Lithium Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Lithium Miners and Sprott Uranium 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 Sprott Uranium Miners are associated (or correlated) with Sprott Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Lithium Miners has no effect on the direction of Sprott Uranium i.e., Sprott Uranium and Sprott Lithium go up and down completely randomly.
Pair Corralation between Sprott Uranium and Sprott Lithium
Given the investment horizon of 90 days Sprott Uranium Miners is expected to generate 1.2 times more return on investment than Sprott Lithium. However, Sprott Uranium is 1.2 times more volatile than Sprott Lithium Miners. It trades about -0.07 of its potential returns per unit of risk. Sprott Lithium Miners is currently generating about -0.13 per unit of risk. If you would invest 4,960 in Sprott Uranium Miners on August 27, 2024 and sell it today you would lose (183.00) from holding Sprott Uranium Miners or give up 3.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sprott Uranium Miners vs. Sprott Lithium Miners
Performance |
| Timeline |
| Sprott Uranium Miners |
| Sprott Lithium Miners |
Sprott Uranium and Sprott Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sprott Uranium and Sprott Lithium
The main advantage of trading using opposite Sprott Uranium and Sprott Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sprott Uranium position performs unexpectedly, Sprott 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 Sprott Lithium will offset losses from the drop in Sprott Lithium's long position.The idea behind Sprott Uranium Miners and Sprott Lithium Miners pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Sprott Lithium vs. Sprott Energy Transition | Sprott Lithium vs. Sprott Junior Copper | Sprott Lithium vs. Sprott Junior Uranium | Sprott Lithium vs. Sprott Nickel Miners |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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