Correlation Between Pampa Metals and Lithium Chile

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

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

Diversification Opportunities for Pampa Metals and Lithium Chile

-0.54

Correlation Coefficient

Pampa Metals  Lithium Chile

Excellent diversification

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

Pair Corralation between Pampa Metals and Lithium Chile

Assuming the 90 days horizon Pampa Metals is expected to generate 2.22 times more return on investment than Lithium Chile. However, Pampa Metals is 2.22 times more volatile than Lithium Chile. It trades about 0.02 of its potential returns per unit of risk. Lithium Chile is currently generating about -0.01 per unit of risk. 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

Pampa Metals  vs.  Lithium Chile

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.

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.

Pair Trading with Pampa Metals and Lithium Chile

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

The idea behind Pampa Metals and Lithium Chile 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.