Correlation Between Core Lithium and Nickel Mines

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

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

Diversification Opportunities for Core Lithium and Nickel Mines

0.58

Correlation Coefficient

Core Lithium  Nickel Mines

Very weak diversification

The 3 months correlation between Core and Nickel is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Nickel Mines Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nickel Mines Limited 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 Nickel Mines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nickel Mines Limited has no effect on the direction of Core Lithium i.e., Core Lithium and Nickel Mines go up and down completely randomly.

Pair Corralation between Core Lithium and Nickel Mines

Assuming the 90 days horizon Core Lithium is expected to generate 2.91 times more return on investment than Nickel Mines. However, Core Lithium is 2.91 times more volatile than Nickel Mines Limited. It trades about 0.07 of its potential returns per unit of risk. Nickel Mines Limited is currently generating about 0.04 per unit of risk. If you would invest  5.60  in Core Lithium on August 31, 2024 and sell it today you would earn a total of  0.60  from holding Core Lithium or generate 10.71% return on investment over 90 days.

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

Core Lithium  vs.  Nickel Mines Limited

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.

Nickel Mines Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nickel Mines Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Nickel Mines may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Core Lithium and Nickel Mines

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

The idea behind Core Lithium and Nickel Mines 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.