Correlation Between Centaurus Metals and Lithium Australia

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

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

Diversification Opportunities for Centaurus Metals and Lithium Australia

0.47

Correlation Coefficient

Centaurus Metals  Lithium Australia

Very weak diversification

The 3 months correlation between Centaurus and Lithium is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Centaurus Metals Limited and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Centaurus Metals 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 Centaurus Metals Limited are associated (or correlated) with Lithium Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Australia has no effect on the direction of Centaurus Metals i.e., Centaurus Metals and Lithium Australia go up and down completely randomly.

Pair Corralation between Centaurus Metals and Lithium Australia

Assuming the 90 days horizon Centaurus Metals is expected to generate 80.5 times less return on investment than Lithium Australia. But when comparing it to its historical volatility, Centaurus Metals Limited is 25.56 times less risky than Lithium Australia. It trades about 0.04 of its potential returns per unit of risk. Lithium Australia NL is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.79  in Lithium Australia NL on September 4, 2024 and sell it today you would lose (0.09) from holding Lithium Australia NL or give up 11.39% of portfolio value over 90 days.

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

Centaurus Metals Limited  vs.  Lithium Australia NL

Centaurus Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Centaurus Metals Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Centaurus Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lithium Australia

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Centaurus Metals and Lithium Australia

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

The idea behind Centaurus Metals Limited and Lithium Australia NL 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.