Correlation Between Core Lithium and Lake Resources

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

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

Diversification Opportunities for Core Lithium and Lake Resources

0.33

Correlation Coefficient

Core Lithium  Lake Resources

Weak diversification

The 3 months correlation between Core and Lake is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Core Lithium i.e., Core Lithium and Lake Resources go up and down completely randomly.

Pair Corralation between Core Lithium and Lake Resources

Assuming the 90 days horizon Core Lithium is expected to generate 1.15 times more return on investment than Lake Resources. However, Core Lithium is 1.15 times more volatile than Lake Resources NL. It trades about 0.07 of its potential returns per unit of risk. Lake Resources NL is currently generating about 0.06 per unit of risk. If you would invest  5.60  in Core Lithium on September 3, 2024 and sell it today you would earn a total of  0.57  from holding Core Lithium or generate 10.18% return on investment over 90 days.

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

Core Lithium  vs.  Lake Resources NL

Core Lithium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Core Lithium are ranked lower than 5 (%) 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.

Lake Resources NL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Core Lithium and Lake Resources

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

The idea behind Core Lithium and Lake Resources 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.