Correlation Between International Lithium and Lithium Chile

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

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

Diversification Opportunities for International Lithium and Lithium Chile

-0.32

Correlation Coefficient

International Lithium  Lithium Chile

Very good diversification

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

Pair Corralation between International Lithium and Lithium Chile

Assuming the 90 days horizon International Lithium Corp is expected to under-perform the Lithium Chile. In addition to that, International Lithium is 1.98 times more volatile than Lithium Chile. It trades about 0.0 of its total potential returns per unit of risk. Lithium Chile is currently generating about 0.02 per unit of volatility. If you would invest  53.00  in Lithium Chile on October 27, 2024 and sell it today you would lose (4.00) from holding Lithium Chile or give up 7.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

International Lithium Corp  vs.  Lithium Chile

International Lithium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Lithium Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, International Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Lithium Chile

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Chile are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Lithium Chile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with International Lithium and Lithium Chile

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

The idea behind International Lithium Corp and Lithium Chile 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.