Correlation Between Lithium Australia and Australian Strategic

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

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

Diversification Opportunities for Lithium Australia and Australian Strategic

0.28

Correlation Coefficient

Lithium Australia  Australian Strategic

Modest diversification

The 3 months correlation between Lithium and Australian is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Australia NL and Australian Strategic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Strategic and Lithium Australia 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 Australia NL are associated (or correlated) with Australian Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Strategic has no effect on the direction of Lithium Australia i.e., Lithium Australia and Australian Strategic go up and down completely randomly.

Pair Corralation between Lithium Australia and Australian Strategic

Assuming the 90 days horizon Lithium Australia NL is expected to generate 26.77 times more return on investment than Australian Strategic. However, Lithium Australia is 26.77 times more volatile than Australian Strategic Materials. It trades about 0.13 of its potential returns per unit of risk. Australian Strategic Materials is currently generating about 0.03 per unit of risk. If you would invest  0.01  in Lithium Australia NL on September 12, 2024 and sell it today you would earn a total of  0.98  from holding Lithium Australia NL or generate 9800.0% return on investment over 90 days.

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

Lithium Australia NL  vs.  Australian Strategic Materials

Lithium Australia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Australia NL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Lithium Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Australian Strategic

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Strategic Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Australian Strategic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lithium Australia and Australian Strategic

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

The idea behind Lithium Australia NL and Australian Strategic Materials 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.