Correlation Between Core Lithium and Arizona Lithium

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

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

Diversification Opportunities for Core Lithium and Arizona Lithium

0.14

Correlation Coefficient

Core Lithium  Arizona Lithium

Average diversification

The 3 months correlation between Core and Arizona is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Arizona Lithium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arizona Lithium and Core 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 Core Lithium are associated (or correlated) with Arizona Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arizona Lithium has no effect on the direction of Core Lithium i.e., Core Lithium and Arizona Lithium go up and down completely randomly.

Pair Corralation between Core Lithium and Arizona Lithium

Assuming the 90 days horizon Core Lithium is expected to generate 20.58 times less return on investment than Arizona Lithium. But when comparing it to its historical volatility, Core Lithium is 8.55 times less risky than Arizona Lithium. It trades about 0.05 of its potential returns per unit of risk. Arizona Lithium Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1.02  in Arizona Lithium Limited on December 29, 2024 and sell it today you would lose (0.57) from holding Arizona Lithium Limited or give up 55.88% of portfolio value over 90 days.

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

Core Lithium  vs.  Arizona Lithium Limited

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.

Arizona Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Core Lithium and Arizona Lithium

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

The idea behind Core Lithium and Arizona Lithium Limited 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.