Correlation Between Lithium Chile and Sun Summit

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

By analyzing existing cross correlation between Lithium Chile and Sun Summit Minerals, you can compare the effects of market volatilities on Lithium Chile and Sun Summit 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 Sun Summit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Chile and Sun Summit.

Diversification Opportunities for Lithium Chile and Sun Summit

-0.27

Correlation Coefficient

Lithium Chile  Sun Summit

Very good diversification

The 3 months correlation between Lithium and Sun is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Chile and Sun Summit Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Summit Minerals 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 Sun Summit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Summit Minerals has no effect on the direction of Lithium Chile i.e., Lithium Chile and Sun Summit go up and down completely randomly.

Pair Corralation between Lithium Chile and Sun Summit

Assuming the 90 days horizon Lithium Chile is expected to under-perform the Sun Summit. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lithium Chile is 2.32 times less risky than Sun Summit. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Sun Summit Minerals is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Sun Summit Minerals on October 12, 2024 and sell it today you would lose (10.00) from holding Sun Summit Minerals or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lithium Chile  vs.  Sun Summit Minerals

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.

Sun Summit Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Summit Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lithium Chile and Sun Summit

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

The idea behind Lithium Chile and Sun Summit Minerals 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.

Check out your portfolio center.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.