Correlation Between Power Metals and Lithium Chile

Can any of the company-specific risk be diversified away by investing in both Power 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 Power 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 Power Metals Corp and Lithium Chile, you can compare the effects of market volatilities on Power 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 Power Metals with a short position of Lithium Chile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Metals and Lithium Chile.

Diversification Opportunities for Power Metals and Lithium Chile

0.66

Correlation Coefficient

Power Metals  Lithium Chile

Poor diversification

The 3 months correlation between Power and Lithium is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Power Metals Corp and Lithium Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Chile and Power 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 Power Metals Corp 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 Power Metals i.e., Power Metals and Lithium Chile go up and down completely randomly.

Pair Corralation between Power Metals and Lithium Chile

Assuming the 90 days horizon Power Metals Corp is expected to generate 1.19 times more return on investment than Lithium Chile. However, Power Metals is 1.19 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 0.02 per unit of risk. If you would invest  22.00  in Power Metals Corp on October 12, 2024 and sell it today you would earn a total of  10.00  from holding Power Metals Corp or generate 45.45% return on investment over 90 days.

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

Power Metals Corp  vs.  Lithium Chile

Power Metals Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Metals Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Power 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 Power Metals and Lithium Chile

The main advantage of trading using opposite Power Metals and Lithium Chile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power 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 Power Metals Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.