Correlation Between Lithium Chile and Argentina Lithium

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

By analyzing existing cross correlation between Lithium Chile and Argentina Lithium Energy, you can compare the effects of market volatilities on Lithium Chile and Argentina 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 Lithium Chile with a short position of Argentina Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Chile and Argentina Lithium.

Diversification Opportunities for Lithium Chile and Argentina Lithium

0.44

Correlation Coefficient

Lithium Chile  Argentina Lithium

Very weak diversification

The 3 months correlation between Lithium and Argentina is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Chile and Argentina Lithium Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Argentina Lithium Energy and Lithium Chile 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 Lithium Chile are associated (or correlated) with Argentina Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Argentina Lithium Energy has no effect on the direction of Lithium Chile i.e., Lithium Chile and Argentina Lithium go up and down completely randomly.

Pair Corralation between Lithium Chile and Argentina Lithium

Assuming the 90 days trading horizon Lithium Chile is expected to generate 0.66 times more return on investment than Argentina Lithium. However, Lithium Chile is 1.52 times less risky than Argentina Lithium. It trades about 0.14 of its potential returns per unit of risk. Argentina Lithium Energy is currently generating about 0.03 per unit of risk. If you would invest  53.00  in Lithium Chile on September 14, 2024 and sell it today you would earn a total of  19.00  from holding Lithium Chile or generate 35.85% return on investment over 90 days.

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

Lithium Chile  vs.  Argentina Lithium Energy

Lithium Chile

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Chile are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lithium Chile showed solid returns over the last few months and may actually be approaching a breakup point.

Argentina Lithium Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Argentina Lithium Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Argentina Lithium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lithium Chile and Argentina Lithium

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

The idea behind Lithium Chile and Argentina Lithium Energy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.