Correlation Between Sprott Lithium and Sprott Uranium

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

Diversification Opportunities for Sprott Lithium and Sprott Uranium

0.91

Correlation Coefficient

Sprott Lithium  Sprott Uranium

Almost no diversification

The 3 months correlation between Sprott and Sprott is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Lithium Miners and Sprott Uranium Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Uranium Miners 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 Uranium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Uranium Miners has no effect on the direction of Sprott Lithium i.e., Sprott Lithium and Sprott Uranium go up and down completely randomly.

Pair Corralation between Sprott Lithium and Sprott Uranium

Given the investment horizon of 90 days Sprott Lithium Miners is expected to under-perform the Sprott Uranium. In addition to that, Sprott Lithium is 1.07 times more volatile than Sprott Uranium Miners. It trades about -0.06 of its total potential returns per unit of risk. Sprott Uranium Miners is currently generating about -0.04 per unit of volatility. If you would invest  4,677  in Sprott Uranium Miners on December 5, 2024 and sell it today you would lose (1,325) from holding Sprott Uranium Miners or give up 28.33% of portfolio value over 90 days.

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

Sprott Lithium Miners  vs.  Sprott Uranium Miners

Sprott Lithium Miners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Lithium Miners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Sprott Uranium Miners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Uranium Miners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with Sprott Lithium and Sprott Uranium

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

The idea behind Sprott Lithium Miners and Sprott Uranium Miners 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.