Correlation Between Posera and Lithium Chile

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

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

Diversification Opportunities for Posera and Lithium Chile

-0.09

Correlation Coefficient

Posera  Lithium Chile

Good diversification

The 3 months correlation between Posera and Lithium is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Posera and Lithium Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Chile and Posera 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 Posera 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 Posera i.e., Posera and Lithium Chile go up and down completely randomly.

Pair Corralation between Posera and Lithium Chile

Assuming the 90 days horizon Posera is expected to generate 2.87 times more return on investment than Lithium Chile. However, Posera is 2.87 times more volatile than Lithium Chile. It trades about 0.04 of its potential returns per unit of risk. Lithium Chile is currently generating about -0.05 per unit of risk. If you would invest  2.99  in Posera on December 20, 2024 and sell it today you would lose (0.26) from holding Posera or give up 8.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Posera  vs.  Lithium Chile

Posera

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Posera are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Posera reported solid returns over the last few months and may actually be approaching a breakup point.

Lithium Chile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Chile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's 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 Posera and Lithium Chile

The main advantage of trading using opposite Posera and Lithium Chile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Posera 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 Posera 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.