Correlation Between Liontown Resources and International Battery

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

Diversification Opportunities for Liontown Resources and International Battery

-0.67

Correlation Coefficient

Liontown Resources  International Battery

Excellent diversification

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

Pair Corralation between Liontown Resources and International Battery

Assuming the 90 days horizon Liontown Resources Limited is expected to generate 0.52 times more return on investment than International Battery. However, Liontown Resources Limited is 1.91 times less risky than International Battery. It trades about 0.06 of its potential returns per unit of risk. International Battery Metals is currently generating about -0.15 per unit of risk. If you would invest  44.00  in Liontown Resources Limited on August 31, 2024 and sell it today you would earn a total of  6.00  from holding Liontown Resources Limited or generate 13.64% return on investment over 90 days.

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

Liontown Resources Limited  vs.  International Battery Metals

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.

International Battery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Battery Metals 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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Liontown Resources and International Battery

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

The idea behind Liontown Resources Limited and International Battery Metals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.