Correlation Between IGO and Core Lithium

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

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

Diversification Opportunities for IGO and Core Lithium

0.21

Correlation Coefficient

IGO  Core Lithium

Modest diversification

The 3 months correlation between IGO and Core is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium and IGO 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 IGO Limited are associated (or correlated) with Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of IGO i.e., IGO and Core Lithium go up and down completely randomly.

Pair Corralation between IGO and Core Lithium

Assuming the 90 days horizon IGO Limited is expected to under-perform the Core Lithium. But the pink sheet apears to be less risky and, when comparing its historical volatility, IGO Limited is 4.24 times less risky than Core Lithium. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Core Lithium is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5.55  in Core Lithium on December 27, 2024 and sell it today you would lose (0.55) from holding Core Lithium or give up 9.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

IGO Limited  vs.  Core Lithium

IGO Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IGO Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Core Lithium

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Core Lithium are ranked lower than 2 (%) 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.

Pair Trading with IGO and Core Lithium

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

The idea behind IGO Limited and Core Lithium 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.