Correlation Between Liontown Resources and Adriatic Metals

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

Diversification Opportunities for Liontown Resources and Adriatic Metals

0.08

Correlation Coefficient

Liontown Resources  Adriatic Metals

Significant diversification

The 3 months correlation between Liontown and Adriatic is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Liontown Resources Limited and Adriatic Metals Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals Plc 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 Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals Plc has no effect on the direction of Liontown Resources i.e., Liontown Resources and Adriatic Metals go up and down completely randomly.

Pair Corralation between Liontown Resources and Adriatic Metals

Assuming the 90 days horizon Liontown Resources Limited is expected to under-perform the Adriatic Metals. In addition to that, Liontown Resources is 2.28 times more volatile than Adriatic Metals Plc. It trades about -0.36 of its total potential returns per unit of risk. Adriatic Metals Plc is currently generating about -0.1 per unit of volatility. If you would invest  252.00  in Adriatic Metals Plc on September 23, 2024 and sell it today you would lose (14.00) from holding Adriatic Metals Plc or give up 5.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Liontown Resources Limited  vs.  Adriatic Metals Plc

Liontown Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liontown Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Adriatic Metals Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Adriatic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liontown Resources and Adriatic Metals

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

The idea behind Liontown Resources Limited and Adriatic Metals Plc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.