Correlation Between Core Lithium and Critical Elements

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

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

Diversification Opportunities for Core Lithium and Critical Elements

-0.32

Correlation Coefficient

Core Lithium  Critical Elements

Very good diversification

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

Pair Corralation between Core Lithium and Critical Elements

Assuming the 90 days horizon Core Lithium is expected to generate 1.17 times less return on investment than Critical Elements. In addition to that, Core Lithium is 1.62 times more volatile than Critical Elements. It trades about 0.05 of its total potential returns per unit of risk. Critical Elements is currently generating about 0.1 per unit of volatility. If you would invest  26.00  in Critical Elements on December 29, 2024 and sell it today you would earn a total of  8.00  from holding Critical Elements or generate 30.77% return on investment over 90 days.

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

Core Lithium  vs.  Critical Elements

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.

Critical Elements

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 7 (%) 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.

Pair Trading with Core Lithium and Critical Elements

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

The idea behind Core Lithium and Critical Elements 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.