Correlation Between Lithium Australia and Strategic Resources

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

Diversification Opportunities for Lithium Australia and Strategic Resources

0.86

Correlation Coefficient

Lithium Australia  Strategic Resources

Very poor diversification

The 3 months correlation between Lithium and Strategic is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Australia NL and Strategic Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Resources 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 Strategic Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Resources has no effect on the direction of Lithium Australia i.e., Lithium Australia and Strategic Resources go up and down completely randomly.

Pair Corralation between Lithium Australia and Strategic Resources

Assuming the 90 days horizon Lithium Australia NL is expected to under-perform the Strategic Resources. In addition to that, Lithium Australia is 4.7 times more volatile than Strategic Resources. It trades about -0.08 of its total potential returns per unit of risk. Strategic Resources is currently generating about -0.12 per unit of volatility. If you would invest  47.00  in Strategic Resources on December 30, 2024 and sell it today you would lose (6.00) from holding Strategic Resources or give up 12.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Lithium Australia NL  vs.  Strategic Resources

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.

Strategic Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lithium Australia and Strategic Resources

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

The idea behind Lithium Australia NL and Strategic Resources 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.