Correlation Between SPDR SP and Sprott Lithium

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Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Sprott Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Metals and Sprott Lithium Miners, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Sprott Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Sprott Lithium.

Diversification Opportunities for SPDR SP and Sprott Lithium

SPDRSprottDiversified AwaySPDRSprottDiversified Away100%
0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between SPDR and Sprott is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals 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 SPDR SP 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 SPDR SP Metals 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 SPDR SP i.e., SPDR SP and Sprott Lithium go up and down completely randomly.

Pair Corralation between SPDR SP and Sprott Lithium

Considering the 90-day investment horizon SPDR SP Metals is expected to generate 0.61 times more return on investment than Sprott Lithium. However, SPDR SP Metals is 1.65 times less risky than Sprott Lithium. It trades about 0.03 of its potential returns per unit of risk. Sprott Lithium Miners is currently generating about -0.05 per unit of risk. If you would invest  5,102  in SPDR SP Metals on November 27, 2024 and sell it today you would earn a total of  774.00  from holding SPDR SP Metals or generate 15.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SPDR SP Metals  vs.  Sprott Lithium Miners

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-505
JavaScript chart by amCharts 3.21.15XME LITP
       Timeline  
SPDR SP Metals 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days SPDR SP Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb5658606264666870
Sprott Lithium Miners 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Sprott Lithium Miners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb6.46.66.877.27.47.67.88

SPDR SP and Sprott Lithium Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.54-1.93-1.32-0.71-0.09470.481.061.642.222.8 0.080.100.120.140.16
JavaScript chart by amCharts 3.21.15XME LITP
       Returns  

Pair Trading with SPDR SP and Sprott Lithium

The main advantage of trading using opposite SPDR SP and Sprott Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP Metals 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.
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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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