Correlation Between Frontier Lithium and Aurelia Metals

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

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

Diversification Opportunities for Frontier Lithium and Aurelia Metals

-0.07

Correlation Coefficient

Frontier Lithium  Aurelia Metals

Good diversification

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

Pair Corralation between Frontier Lithium and Aurelia Metals

Assuming the 90 days horizon Frontier Lithium is expected to under-perform the Aurelia Metals. In addition to that, Frontier Lithium is 1.09 times more volatile than Aurelia Metals Limited. It trades about -0.12 of its total potential returns per unit of risk. Aurelia Metals Limited is currently generating about 0.02 per unit of volatility. If you would invest  15.00  in Aurelia Metals Limited on August 31, 2024 and sell it today you would earn a total of  0.00  from holding Aurelia Metals Limited or generate 0.0% return on investment over 90 days.

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

Frontier Lithium  vs.  Aurelia Metals Limited

Frontier Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontier Lithium 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.

Aurelia Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aurelia Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Frontier Lithium and Aurelia Metals

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

The idea behind Frontier Lithium and Aurelia Metals Limited 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.