Correlation Between Sun Summit and Lithium Chile

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

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

Diversification Opportunities for Sun Summit and Lithium Chile

-0.35

Correlation Coefficient

Sun Summit  Lithium Chile

Very good diversification

The 3 months correlation between Sun and Lithium is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Sun Summit Minerals and Lithium Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Chile and Sun Summit 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 Sun Summit Minerals 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 Sun Summit i.e., Sun Summit and Lithium Chile go up and down completely randomly.

Pair Corralation between Sun Summit and Lithium Chile

Assuming the 90 days horizon Sun Summit Minerals is expected to generate 4.09 times more return on investment than Lithium Chile. However, Sun Summit is 4.09 times more volatile than Lithium Chile. It trades about 0.06 of its potential returns per unit of risk. Lithium Chile is currently generating about 0.02 per unit of risk. If you would invest  8.36  in Sun Summit Minerals on October 27, 2024 and sell it today you would earn a total of  1.36  from holding Sun Summit Minerals or generate 16.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.47%
Values	Daily Returns

Sun Summit Minerals  vs.  Lithium Chile

Sun Summit Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Summit Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 fragile fundamental indicators, Lithium Chile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sun Summit and Lithium Chile

The main advantage of trading using opposite Sun Summit and Lithium Chile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Summit 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 Sun Summit Minerals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.