Correlation Between Arizona Lithium and Regulus Resources

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

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

Diversification Opportunities for Arizona Lithium and Regulus Resources

0.51

Correlation Coefficient

Arizona Lithium  Regulus Resources

Very weak diversification

The 3 months correlation between Arizona and Regulus is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Arizona Lithium Limited and Regulus Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regulus Resources and Arizona 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 Arizona Lithium Limited are associated (or correlated) with Regulus Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regulus Resources has no effect on the direction of Arizona Lithium i.e., Arizona Lithium and Regulus Resources go up and down completely randomly.

Pair Corralation between Arizona Lithium and Regulus Resources

Assuming the 90 days horizon Arizona Lithium Limited is expected to generate 8.13 times more return on investment than Regulus Resources. However, Arizona Lithium is 8.13 times more volatile than Regulus Resources. It trades about 0.02 of its potential returns per unit of risk. Regulus Resources is currently generating about -0.02 per unit of risk. If you would invest  1.30  in Arizona Lithium Limited on September 14, 2024 and sell it today you would lose (0.40) from holding Arizona Lithium Limited or give up 30.77% of portfolio value over 90 days.

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

Arizona Lithium Limited  vs.  Regulus Resources

Arizona Lithium

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Regulus Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Regulus Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Regulus Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arizona Lithium and Regulus Resources

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

The idea behind Arizona Lithium Limited and Regulus Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.