Correlation Between Anglo American and United Lithium

Can any of the company-specific risk be diversified away by investing in both Anglo American and United 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 United 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 United Lithium Corp, you can compare the effects of market volatilities on Anglo American and United 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 United Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and United Lithium.

Diversification Opportunities for Anglo American and United Lithium

-0.46

Correlation Coefficient

Anglo American  United Lithium

Very good diversification

The 3 months correlation between Anglo and United is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and United Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Lithium Corp 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 United Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Lithium Corp has no effect on the direction of Anglo American i.e., Anglo American and United Lithium go up and down completely randomly.

Pair Corralation between Anglo American and United Lithium

Assuming the 90 days horizon Anglo American is expected to generate 2.24 times less return on investment than United Lithium. But when comparing it to its historical volatility, Anglo American plc is 4.49 times less risky than United Lithium. It trades about 0.07 of its potential returns per unit of risk. United Lithium Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  38.00  in United Lithium Corp on September 4, 2024 and sell it today you would lose (27.00) from holding United Lithium Corp or give up 71.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.33%
Values	Daily Returns

Anglo American plc  vs.  United Lithium Corp

Anglo American plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Anglo American reported solid returns over the last few months and may actually be approaching a breakup point.

United Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, United Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Anglo American and United Lithium

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

The idea behind Anglo American plc and United Lithium Corp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.