Correlation Between Sprott Energy and Sprott Lithium

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

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

Diversification Opportunities for Sprott Energy and Sprott Lithium

0.87

Correlation Coefficient

Sprott Energy  Sprott Lithium

Very poor diversification

The 3 months correlation between Sprott and Sprott is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Energy Transition and Sprott Lithium Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Lithium Miners and Sprott Energy 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 Sprott Energy Transition are associated (or correlated) with Sprott Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Lithium Miners has no effect on the direction of Sprott Energy i.e., Sprott Energy and Sprott Lithium go up and down completely randomly.

Pair Corralation between Sprott Energy and Sprott Lithium

Given the investment horizon of 90 days Sprott Energy Transition is expected to generate 1.01 times more return on investment than Sprott Lithium. However, Sprott Energy is 1.01 times more volatile than Sprott Lithium Miners. It trades about -0.07 of its potential returns per unit of risk. Sprott Lithium Miners is currently generating about -0.23 per unit of risk. If you would invest  1,689  in Sprott Energy Transition on September 16, 2024 and sell it today you would lose (47.00) from holding Sprott Energy Transition or give up 2.78% of portfolio value over 90 days.

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

Sprott Energy Transition  vs.  Sprott Lithium Miners

Sprott Energy Transition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sprott Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sprott Lithium Miners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Lithium Miners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Sprott Lithium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sprott Energy and Sprott Lithium

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

The idea behind Sprott Energy Transition and Sprott Lithium Miners 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.