Correlation Between Vulcan Materials and Liontown Resources

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

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

Diversification Opportunities for Vulcan Materials and Liontown Resources

0.28

Correlation Coefficient

Vulcan Materials  Liontown Resources

Modest diversification

The 3 months correlation between Vulcan and Liontown is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Liontown Resources go up and down completely randomly.

Pair Corralation between Vulcan Materials and Liontown Resources

Assuming the 90 days horizon Vulcan Materials is expected to under-perform the Liontown Resources. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 6.17 times less risky than Liontown Resources. The stock trades about -0.13 of its potential returns per unit of risk. The Liontown Resources Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Liontown Resources Limited on December 30, 2024 and sell it today you would earn a total of  6.00  from holding Liontown Resources Limited or generate 18.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Vulcan Materials  vs.  Liontown Resources Limited

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Liontown Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Liontown Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vulcan Materials and Liontown Resources

The main advantage of trading using opposite Vulcan Materials and Liontown Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.