Correlation Between Metals Creek and Arizona Lithium

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

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

Diversification Opportunities for Metals Creek and Arizona Lithium

-0.18

Correlation Coefficient

Metals Creek  Arizona Lithium

Good diversification

The 3 months correlation between Metals and Arizona is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Metals Creek Resources and Arizona Lithium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arizona Lithium and Metals Creek 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 Metals Creek Resources are associated (or correlated) with Arizona Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arizona Lithium has no effect on the direction of Metals Creek i.e., Metals Creek and Arizona Lithium go up and down completely randomly.

Pair Corralation between Metals Creek and Arizona Lithium

Assuming the 90 days horizon Metals Creek Resources is expected to generate 1.67 times more return on investment than Arizona Lithium. However, Metals Creek is 1.67 times more volatile than Arizona Lithium Limited. It trades about 0.17 of its potential returns per unit of risk. Arizona Lithium Limited is currently generating about 0.09 per unit of risk. If you would invest  1.00  in Metals Creek Resources on September 3, 2024 and sell it today you would earn a total of  2.00  from holding Metals Creek Resources or generate 200.0% return on investment over 90 days.

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

Metals Creek Resources  vs.  Arizona Lithium Limited

Metals Creek Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metals Creek Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Metals Creek reported solid returns over the last few months and may actually be approaching a breakup point.

Arizona Lithium

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metals Creek and Arizona Lithium

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

The idea behind Metals Creek Resources and Arizona Lithium Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.