Correlation Between Silver Spruce and Liontown Resources

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

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

Diversification Opportunities for Silver Spruce and Liontown Resources

0.68

Correlation Coefficient

Silver Spruce  Liontown Resources

Poor diversification

The 3 months correlation between Silver and Liontown is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spruce Resources and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Silver Spruce 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 Silver Spruce Resources are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Silver Spruce i.e., Silver Spruce and Liontown Resources go up and down completely randomly.

Pair Corralation between Silver Spruce and Liontown Resources

Assuming the 90 days horizon Silver Spruce is expected to generate 1.2 times less return on investment than Liontown Resources. In addition to that, Silver Spruce is 1.81 times more volatile than Liontown Resources Limited. It trades about 0.12 of its total potential returns per unit of risk. Liontown Resources Limited is currently generating about 0.26 per unit of volatility. If you would invest  34.00  in Liontown Resources Limited on October 27, 2024 and sell it today you would earn a total of  7.00  from holding Liontown Resources Limited or generate 20.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Silver Spruce Resources  vs.  Liontown Resources Limited

Silver Spruce Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silver Spruce Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers 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.

Liontown Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liontown Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic 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.

Pair Trading with Silver Spruce and Liontown Resources

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

The idea behind Silver Spruce Resources and Liontown Resources Limited 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..