Correlation Between Exxon and Sprott Lithium
Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and Sprott Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Sprott Lithium Miners, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of Sprott Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Sprott Lithium.
Diversification Opportunities for Exxon and Sprott Lithium
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Exxon and Sprott is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp 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 Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Sprott Lithium go up and down completely randomly.
Pair Corralation between Exxon and Sprott Lithium
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.62 times more return on investment than Sprott Lithium. However, Exxon Mobil Corp is 1.6 times less risky than Sprott Lithium. 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 11,793 in Exxon Mobil Corp on August 27, 2024 and sell it today you would earn a total of 204.00 from holding Exxon Mobil Corp or generate 1.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Sprott Lithium Miners
Performance |
| Timeline |
| Exxon Mobil Corp |
| Sprott Lithium Miners |
Exxon and Sprott Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Sprott Lithium
The main advantage of trading using opposite Exxon and Sprott Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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