Correlation Between Liontown Resources and Critical Elements

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

Diversification Opportunities for Liontown Resources and Critical Elements

0.6

Correlation Coefficient

Liontown Resources  Critical Elements

Poor diversification

The 3 months correlation between Liontown and Critical is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements 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 Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Liontown Resources i.e., Liontown Resources and Critical Elements go up and down completely randomly.

Pair Corralation between Liontown Resources and Critical Elements

Assuming the 90 days horizon Liontown Resources Limited is expected to generate 1.34 times more return on investment than Critical Elements. However, Liontown Resources is 1.34 times more volatile than Critical Elements. It trades about -0.01 of its potential returns per unit of risk. Critical Elements is currently generating about -0.08 per unit of risk. If you would invest  115.00  in Liontown Resources Limited on October 27, 2024 and sell it today you would lose (74.00) from holding Liontown Resources Limited or give up 64.35% of portfolio value over 90 days.

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

Liontown Resources Limited  vs.  Critical Elements

Liontown Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liontown Resources 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 basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Critical Elements

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Critical Elements 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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Liontown Resources and Critical Elements

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

The idea behind Liontown Resources Limited and Critical Elements 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.