Correlation Between Vision Lithium and Frontier Lithium

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

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

Diversification Opportunities for Vision Lithium and Frontier Lithium

0.02

Correlation Coefficient

Vision Lithium  Frontier Lithium

Significant diversification

The 3 months correlation between Vision and Frontier is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Vision Lithium and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and Vision 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 Vision Lithium are associated (or correlated) with Frontier Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Lithium has no effect on the direction of Vision Lithium i.e., Vision Lithium and Frontier Lithium go up and down completely randomly.

Pair Corralation between Vision Lithium and Frontier Lithium

Assuming the 90 days horizon Vision Lithium is expected to generate 3.38 times more return on investment than Frontier Lithium. However, Vision Lithium is 3.38 times more volatile than Frontier Lithium. It trades about 0.07 of its potential returns per unit of risk. Frontier Lithium is currently generating about -0.11 per unit of risk. If you would invest  1.54  in Vision Lithium on September 10, 2024 and sell it today you would earn a total of  0.14  from holding Vision Lithium or generate 9.09% return on investment over 90 days.

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

Vision Lithium  vs.  Frontier Lithium

Vision Lithium

Risk-Adjusted Performance

5 of 100

OK

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

Frontier Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vision Lithium and Frontier Lithium

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

The idea behind Vision Lithium and Frontier 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.