Correlation Between CleanTech Lithium and Rockfire Resources

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

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

Diversification Opportunities for CleanTech Lithium and Rockfire Resources

-0.62

Correlation Coefficient

CleanTech Lithium  Rockfire Resources

Excellent diversification

The 3 months correlation between CleanTech and Rockfire is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding CleanTech Lithium plc and Rockfire Resources plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockfire Resources plc and CleanTech Lithium 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 CleanTech Lithium plc are associated (or correlated) with Rockfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockfire Resources plc has no effect on the direction of CleanTech Lithium i.e., CleanTech Lithium and Rockfire Resources go up and down completely randomly.

Pair Corralation between CleanTech Lithium and Rockfire Resources

Assuming the 90 days trading horizon CleanTech Lithium plc is expected to under-perform the Rockfire Resources. But the stock apears to be less risky and, when comparing its historical volatility, CleanTech Lithium plc is 4.14 times less risky than Rockfire Resources. The stock trades about -0.14 of its potential returns per unit of risk. The Rockfire Resources plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Rockfire Resources plc on October 23, 2024 and sell it today you would earn a total of  5.00  from holding Rockfire Resources plc or generate 45.45% return on investment over 90 days.

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

CleanTech Lithium plc  vs.  Rockfire Resources plc

CleanTech Lithium plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CleanTech Lithium plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Rockfire Resources plc

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with CleanTech Lithium and Rockfire Resources

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

The idea behind CleanTech Lithium plc and Rockfire Resources plc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.