Correlation Between Standard Lithium and Core Lithium

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

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

Diversification Opportunities for Standard Lithium and Core Lithium

0.85

Correlation Coefficient

Standard Lithium  Core Lithium

Very poor diversification

The 3 months correlation between Standard and Core is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 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 Standard Lithium i.e., Standard Lithium and Core Lithium go up and down completely randomly.

Pair Corralation between Standard Lithium and Core Lithium

Considering the 90-day investment horizon Standard Lithium is expected to under-perform the Core Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Standard Lithium is 2.43 times less risky than Core Lithium. The stock trades about -0.03 of its potential returns per unit of risk. The Core Lithium is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Core Lithium on October 21, 2024 and sell it today you would lose (2.78) from holding Core Lithium or give up 34.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Standard Lithium  vs.  Core Lithium

Standard Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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. Despite nearly stable basic indicators, Core Lithium 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 Core Lithium

The main advantage of trading using opposite Standard Lithium and Core Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Lithium 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 Standard Lithium 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.