Correlation Between Liontown Resources and Core Lithium

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

Diversification Opportunities for Liontown Resources and Core Lithium

0.61

Correlation Coefficient

Liontown Resources  Core Lithium

Poor diversification

The 3 months correlation between Liontown and Core is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Liontown Resources i.e., Liontown Resources and Core Lithium go up and down completely randomly.

Pair Corralation between Liontown Resources and Core Lithium

Assuming the 90 days horizon Liontown Resources is expected to generate 2.99 times less return on investment than Core Lithium. But when comparing it to its historical volatility, Liontown Resources Limited is 2.67 times less risky than Core Lithium. It trades about 0.06 of its potential returns per unit of risk. Core Lithium is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5.60  in Core Lithium on August 31, 2024 and sell it today you would earn a total of  0.60  from holding Core Lithium or generate 10.71% return on investment over 90 days.

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

Liontown Resources Limited  vs.  Core Lithium

Liontown Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 5 (%) 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.

Core Lithium

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Liontown Resources and Core Lithium

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

The idea behind Liontown Resources Limited and Core 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.

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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.