Correlation Between Lithium Chile and Pampa Metals

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

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

Diversification Opportunities for Lithium Chile and Pampa Metals

-0.54

Correlation Coefficient

Lithium Chile  Pampa Metals

Excellent diversification

The 3 months correlation between Lithium and Pampa is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Chile and Pampa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pampa Metals and Lithium Chile 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 Chile are associated (or correlated) with Pampa Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pampa Metals has no effect on the direction of Lithium Chile i.e., Lithium Chile and Pampa Metals go up and down completely randomly.

Pair Corralation between Lithium Chile and Pampa Metals

Assuming the 90 days horizon Lithium Chile is expected to under-perform the Pampa Metals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lithium Chile is 2.22 times less risky than Pampa Metals. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Pampa Metals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Pampa Metals on October 12, 2024 and sell it today you would lose (7.00) from holding Pampa Metals or give up 36.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.47%
Values	Daily Returns

Lithium Chile  vs.  Pampa Metals

Lithium Chile

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Chile are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Lithium Chile is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pampa Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pampa Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Pampa Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithium Chile and Pampa Metals

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

The idea behind Lithium Chile and Pampa 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.