Correlation Between Sprott Lithium and Sprott Energy

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

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

Diversification Opportunities for Sprott Lithium and Sprott Energy

0.87

Correlation Coefficient

Sprott Lithium  Sprott Energy

Very poor diversification

The 3 months correlation between Sprott and Sprott is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Lithium Miners and Sprott Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Energy Transition and Sprott 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 Sprott Lithium Miners are associated (or correlated) with Sprott Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Energy Transition has no effect on the direction of Sprott Lithium i.e., Sprott Lithium and Sprott Energy go up and down completely randomly.

Pair Corralation between Sprott Lithium and Sprott Energy

Given the investment horizon of 90 days Sprott Lithium is expected to generate 1.08 times less return on investment than Sprott Energy. In addition to that, Sprott Lithium is 1.0 times more volatile than Sprott Energy Transition. It trades about 0.04 of its total potential returns per unit of risk. Sprott Energy Transition is currently generating about 0.05 per unit of volatility. If you would invest  0.00  in Sprott Energy Transition on September 16, 2024 and sell it today you would earn a total of  1,642  from holding Sprott Energy Transition or generate 9.223372036854776E16% return on investment over 90 days.

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

Sprott Lithium Miners  vs.  Sprott Energy Transition

Sprott Lithium Miners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Lithium Miners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Sprott Lithium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sprott Energy Transition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sprott Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sprott Lithium and Sprott Energy

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

The idea behind Sprott Lithium Miners and Sprott Energy Transition 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.