Correlation Between Lithium Australia and Global Energy

Can any of the company-specific risk be diversified away by investing in both Lithium Australia and Global 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 Lithium Australia and Global Energy 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 Global Energy Metals, you can compare the effects of market volatilities on Lithium Australia and Global 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 Lithium Australia with a short position of Global Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Australia and Global Energy.

Diversification Opportunities for Lithium Australia and Global Energy

0.12

Correlation Coefficient

Lithium Australia  Global Energy

Average diversification

The 3 months correlation between Lithium and Global is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Australia NL and Global Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Energy Metals 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 Global Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Energy Metals has no effect on the direction of Lithium Australia i.e., Lithium Australia and Global Energy go up and down completely randomly.

Pair Corralation between Lithium Australia and Global Energy

Assuming the 90 days horizon Lithium Australia NL is expected to under-perform the Global Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lithium Australia NL is 1.78 times less risky than Global Energy. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Global Energy Metals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1.34  in Global Energy Metals on December 29, 2024 and sell it today you would earn a total of  0.13  from holding Global Energy Metals or generate 9.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Lithium Australia NL  vs.  Global Energy Metals

Lithium Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Australia NL 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Global Energy Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Energy Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Global Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithium Australia and Global Energy

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

The idea behind Lithium Australia NL and Global Energy Metals 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.