Correlation Between Global Energy and Lithium Australia

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

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

Diversification Opportunities for Global Energy and Lithium Australia

-0.25

Correlation Coefficient

Global Energy  Lithium Australia

Very good diversification

The 3 months correlation between Global and Lithium is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Global Energy Metals and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and Global Energy 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 Global Energy Metals 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 Global Energy i.e., Global Energy and Lithium Australia go up and down completely randomly.

Pair Corralation between Global Energy and Lithium Australia

Assuming the 90 days horizon Global Energy Metals is expected to under-perform the Lithium Australia. But the otc stock apears to be less risky and, when comparing its historical volatility, Global Energy Metals is 12.74 times less risky than Lithium Australia. The otc stock trades about -0.03 of its potential returns per unit of risk. The 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Global Energy Metals  vs.  Lithium Australia NL

Global Energy Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Global Energy and Lithium Australia

The main advantage of trading using opposite Global Energy and Lithium Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Energy 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 Global Energy Metals 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.