Correlation Between Australian Unity and Liontown Resources

Can any of the company-specific risk be diversified away by investing in both Australian Unity and Liontown Resources 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 Australian Unity and Liontown Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Australian Unity Office and Liontown Resources, you can compare the effects of market volatilities on Australian Unity and Liontown Resources 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 Australian Unity with a short position of Liontown Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Unity and Liontown Resources.

Diversification Opportunities for Australian Unity and Liontown Resources

0.44

Correlation Coefficient

Australian Unity  Liontown Resources

Very weak diversification

The 3 months correlation between Australian and Liontown is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Australian Unity Office and Liontown Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Australian Unity 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 Australian Unity Office are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Australian Unity i.e., Australian Unity and Liontown Resources go up and down completely randomly.

Pair Corralation between Australian Unity and Liontown Resources

Assuming the 90 days trading horizon Australian Unity is expected to generate 7.2 times less return on investment than Liontown Resources. But when comparing it to its historical volatility, Australian Unity Office is 7.59 times less risky than Liontown Resources. It trades about 0.1 of its potential returns per unit of risk. Liontown Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  54.00  in Liontown Resources on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Liontown Resources or generate 22.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Australian Unity Office  vs.  Liontown Resources

Australian Unity Office

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Unity Office are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Australian Unity is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Liontown Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Liontown Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Unity and Liontown Resources

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

The idea behind Australian Unity Office and Liontown Resources 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.