Correlation Between IGO and Alpha Lithium

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

Diversification Opportunities for IGO and Alpha Lithium

0.67

Correlation Coefficient

IGO  Alpha Lithium

Poor diversification

The 3 months correlation between IGO and Alpha is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Alpha Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha 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 Alpha Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Lithium has no effect on the direction of IGO i.e., IGO and Alpha Lithium go up and down completely randomly.

Pair Corralation between IGO and Alpha Lithium

Assuming the 90 days horizon IGO Limited is expected to under-perform the Alpha Lithium. But the pink sheet apears to be less risky and, when comparing its historical volatility, IGO Limited is 4.9 times less risky than Alpha Lithium. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Alpha Lithium is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Alpha Lithium on August 31, 2024 and sell it today you would lose (2.00) from holding Alpha Lithium or give up 11.76% of portfolio value over 90 days.

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

IGO Limited  vs.  Alpha Lithium

IGO Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IGO Limited 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 fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Alpha Lithium

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with IGO and Alpha Lithium

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

The idea behind IGO Limited and Alpha 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.