Correlation Between Materials Select and Sprott Lithium
Can any of the company-specific risk be diversified away by investing in both Materials Select 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 Materials Select and Sprott Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Select Sector and Sprott Lithium Miners, you can compare the effects of market volatilities on Materials Select 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 Materials Select with a short position of Sprott Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and Sprott Lithium.
Diversification Opportunities for Materials Select and Sprott Lithium
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Materials and Sprott is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector 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 Materials Select 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 Materials Select Sector 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 Materials Select i.e., Materials Select and Sprott Lithium go up and down completely randomly.
Pair Corralation between Materials Select and Sprott Lithium
Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the Sprott Lithium. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 3.83 times less risky than Sprott Lithium. The etf trades about -0.1 of its potential returns per unit of risk. The Sprott Lithium Miners is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 791.00 in Sprott Lithium Miners on August 27, 2024 and sell it today you would earn a total of 44.00 from holding Sprott Lithium Miners or generate 5.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Select Sector vs. Sprott Lithium Miners
Performance |
| Timeline |
| Materials Select Sector |
| Sprott Lithium Miners |
Materials Select and Sprott Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Select and Sprott Lithium
The main advantage of trading using opposite Materials Select and Sprott Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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.| Materials Select vs. Industrial Select Sector | Materials Select vs. Consumer Discretionary Select | Materials Select vs. Consumer Staples Select | Materials Select vs. Utilities Select Sector |
| 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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