Correlation Between Liontown Resources and American Rare

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

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

Diversification Opportunities for Liontown Resources and American Rare

0.35

Correlation Coefficient

Liontown Resources  American Rare

Weak diversification

The 3 months correlation between Liontown and American is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths and Liontown Resources 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 Liontown Resources Limited are associated (or correlated) with American Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of Liontown Resources i.e., Liontown Resources and American Rare go up and down completely randomly.

Pair Corralation between Liontown Resources and American Rare

Assuming the 90 days horizon Liontown Resources Limited is expected to generate 1.37 times more return on investment than American Rare. However, Liontown Resources is 1.37 times more volatile than American Rare Earths. It trades about 0.08 of its potential returns per unit of risk. American Rare Earths is currently generating about 0.07 per unit of risk. If you would invest  35.00  in Liontown Resources Limited on December 31, 2024 and sell it today you would earn a total of  6.00  from holding Liontown Resources Limited or generate 17.14% return on investment over 90 days.

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

Liontown Resources Limited  vs.  American Rare Earths

Liontown Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liontown Resources reported solid returns over the last few months and may actually be approaching a breakup point.

American Rare Earths

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Rare Earths are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liontown Resources and American Rare

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

The idea behind Liontown Resources Limited and American Rare Earths 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.