Correlation Between Litigation Capital and Southern Copper

Can any of the company-specific risk be diversified away by investing in both Litigation Capital and Southern Copper 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 Litigation Capital and Southern Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Litigation Capital Management and Southern Copper Corp, you can compare the effects of market volatilities on Litigation Capital and Southern Copper 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 Litigation Capital with a short position of Southern Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Litigation Capital and Southern Copper.

Diversification Opportunities for Litigation Capital and Southern Copper

-0.07

Correlation Coefficient

Litigation Capital  Southern Copper

Good diversification

The 3 months correlation between Litigation and Southern is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Litigation Capital Management and Southern Copper Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper Corp and Litigation Capital 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 Litigation Capital Management are associated (or correlated) with Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper Corp has no effect on the direction of Litigation Capital i.e., Litigation Capital and Southern Copper go up and down completely randomly.

Pair Corralation between Litigation Capital and Southern Copper

Assuming the 90 days trading horizon Litigation Capital Management is expected to generate 1.07 times more return on investment than Southern Copper. However, Litigation Capital is 1.07 times more volatile than Southern Copper Corp. It trades about 0.09 of its potential returns per unit of risk. Southern Copper Corp is currently generating about 0.05 per unit of risk. If you would invest  9,589  in Litigation Capital Management on September 12, 2024 and sell it today you would earn a total of  1,261  from holding Litigation Capital Management or generate 13.15% return on investment over 90 days.

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

Litigation Capital Management  vs.  Southern Copper Corp

Litigation Capital

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Litigation Capital Management are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Litigation Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Southern Copper Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Southern Copper may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Litigation Capital and Southern Copper

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

The idea behind Litigation Capital Management and Southern Copper Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.