Correlation Between Imagine Lithium and Lithium Chile

Can any of the company-specific risk be diversified away by investing in both Imagine 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 Imagine 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 Imagine Lithium and Lithium Chile, you can compare the effects of market volatilities on Imagine 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 Imagine Lithium with a short position of Lithium Chile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imagine Lithium and Lithium Chile.

Diversification Opportunities for Imagine Lithium and Lithium Chile

-0.36

Correlation Coefficient

Imagine Lithium  Lithium Chile

Very good diversification

The 3 months correlation between Imagine and Lithium is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Imagine Lithium and Lithium Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Chile and Imagine 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 Imagine Lithium 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 Imagine Lithium i.e., Imagine Lithium and Lithium Chile go up and down completely randomly.

Pair Corralation between Imagine Lithium and Lithium Chile

Assuming the 90 days horizon Imagine Lithium is expected to generate 2.14 times more return on investment than Lithium Chile. However, Imagine Lithium is 2.14 times more volatile than Lithium Chile. It trades about 0.01 of its potential returns per unit of risk. Lithium Chile is currently generating about 0.02 per unit of risk. If you would invest  9.00  in Imagine Lithium on September 4, 2024 and sell it today you would lose (7.00) from holding Imagine Lithium or give up 77.78% of portfolio value over 90 days.

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

Imagine Lithium  vs.  Lithium Chile

Imagine Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imagine Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Lithium Chile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Chile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Lithium Chile showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imagine Lithium and Lithium Chile

The main advantage of trading using opposite Imagine Lithium and Lithium Chile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imagine 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 Imagine Lithium 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.