Correlation Between Standard Lithium and Encavis AG

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

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

Diversification Opportunities for Standard Lithium and Encavis AG

-0.81

Correlation Coefficient

Standard Lithium  Encavis AG

Pay attention - limited upside

The 3 months correlation between Standard and Encavis is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Encavis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encavis AG and Standard Lithium 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 Standard Lithium are associated (or correlated) with Encavis AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encavis AG has no effect on the direction of Standard Lithium i.e., Standard Lithium and Encavis AG go up and down completely randomly.

Pair Corralation between Standard Lithium and Encavis AG

Assuming the 90 days horizon Standard Lithium is expected to under-perform the Encavis AG. In addition to that, Standard Lithium is 26.62 times more volatile than Encavis AG. It trades about -0.02 of its total potential returns per unit of risk. Encavis AG is currently generating about 0.2 per unit of volatility. If you would invest  1,736  in Encavis AG on December 30, 2024 and sell it today you would earn a total of  35.00  from holding Encavis AG or generate 2.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Standard Lithium  vs.  Encavis AG

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Standard Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Encavis AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encavis AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encavis AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Standard Lithium and Encavis AG

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

The idea behind Standard Lithium and Encavis AG 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.