Correlation Between Anglo American and Stria Lithium

Can any of the company-specific risk be diversified away by investing in both Anglo American and Stria 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 Anglo American and Stria Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anglo American plc and Stria Lithium, you can compare the effects of market volatilities on Anglo American and Stria 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 Anglo American with a short position of Stria Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Stria Lithium.

Diversification Opportunities for Anglo American and Stria Lithium

-0.65

Correlation Coefficient

Anglo American  Stria Lithium

Excellent diversification

The 3 months correlation between Anglo and Stria is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and Stria Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stria Lithium and Anglo American 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 Anglo American plc are associated (or correlated) with Stria Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stria Lithium has no effect on the direction of Anglo American i.e., Anglo American and Stria Lithium go up and down completely randomly.

Pair Corralation between Anglo American and Stria Lithium

Assuming the 90 days horizon Anglo American plc is expected to generate 0.52 times more return on investment than Stria Lithium. However, Anglo American plc is 1.91 times less risky than Stria Lithium. It trades about -0.11 of its potential returns per unit of risk. Stria Lithium is currently generating about -0.21 per unit of risk. If you would invest  3,164  in Anglo American plc on September 1, 2024 and sell it today you would lose (159.00) from holding Anglo American plc or give up 5.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Anglo American plc  vs.  Stria Lithium

Anglo American plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Anglo American may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Stria Lithium

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stria Lithium are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Stria Lithium may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Anglo American and Stria Lithium

The main advantage of trading using opposite Anglo American and Stria Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anglo American position performs unexpectedly, Stria 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 Stria Lithium will offset losses from the drop in Stria Lithium's long position.

The idea behind Anglo American plc and Stria Lithium 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.