Correlation Between Sandfire Resources and Core Lithium

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

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

Diversification Opportunities for Sandfire Resources and Core Lithium

0.58

Correlation Coefficient

Sandfire Resources  Core Lithium

Very weak diversification

The 3 months correlation between Sandfire and Core is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sandfire Resources NL and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium and Sandfire Resources 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 Sandfire Resources NL are associated (or correlated) with Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Sandfire Resources i.e., Sandfire Resources and Core Lithium go up and down completely randomly.

Pair Corralation between Sandfire Resources and Core Lithium

Assuming the 90 days trading horizon Sandfire Resources NL is expected to generate 0.38 times more return on investment than Core Lithium. However, Sandfire Resources NL is 2.64 times less risky than Core Lithium. It trades about -0.22 of its potential returns per unit of risk. Core Lithium is currently generating about -0.19 per unit of risk. If you would invest  1,096  in Sandfire Resources NL on September 21, 2024 and sell it today you would lose (169.00) from holding Sandfire Resources NL or give up 15.42% of portfolio value over 90 days.

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

Sandfire Resources NL  vs.  Core Lithium

Sandfire Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources NL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sandfire Resources is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sandfire Resources and Core Lithium

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

The idea behind Sandfire Resources NL and Core Lithium 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.