Correlation Between Liontown Resources and Fathom Nickel

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

Diversification Opportunities for Liontown Resources and Fathom Nickel

-0.16

Correlation Coefficient

Liontown Resources  Fathom Nickel

Good diversification

The 3 months correlation between Liontown and Fathom is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and Fathom Nickel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fathom Nickel 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 Fathom Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fathom Nickel has no effect on the direction of Liontown Resources i.e., Liontown Resources and Fathom Nickel go up and down completely randomly.

Pair Corralation between Liontown Resources and Fathom Nickel

Assuming the 90 days horizon Liontown Resources is expected to generate 2.27 times less return on investment than Fathom Nickel. But when comparing it to its historical volatility, Liontown Resources Limited is 2.58 times less risky than Fathom Nickel. It trades about 0.07 of its potential returns per unit of risk. Fathom Nickel is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.96  in Fathom Nickel on December 30, 2024 and sell it today you would earn a total of  0.03  from holding Fathom Nickel or generate 1.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Liontown Resources Limited  vs.  Fathom Nickel

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 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.

Fathom Nickel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fathom Nickel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Fathom Nickel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liontown Resources and Fathom Nickel

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

The idea behind Liontown Resources Limited and Fathom Nickel 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.