Correlation Between Critical Elements and Core Lithium

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

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

Diversification Opportunities for Critical Elements and Core Lithium

-0.32

Correlation Coefficient

Critical Elements  Core Lithium

Very good diversification

The 3 months correlation between Critical and Core is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Critical Elements and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium and Critical Elements 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 Critical Elements are associated (or correlated) with Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Critical Elements i.e., Critical Elements and Core Lithium go up and down completely randomly.

Pair Corralation between Critical Elements and Core Lithium

Assuming the 90 days horizon Critical Elements is expected to generate 0.62 times more return on investment than Core Lithium. However, Critical Elements is 1.61 times less risky than Core Lithium. It trades about 0.11 of its potential returns per unit of risk. Core Lithium is currently generating about 0.05 per unit of risk. If you would invest  26.00  in Critical Elements on December 29, 2024 and sell it today you would earn a total of  9.00  from holding Critical Elements or generate 34.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Critical Elements  vs.  Core Lithium

Critical Elements

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Critical Elements reported solid returns over the last few months and may actually be approaching a breakup point.

Core Lithium

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Core Lithium are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Core Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Critical Elements and Core Lithium

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

The idea behind Critical Elements and Core 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.