Correlation Between CAT Strategic and Arizona Lithium

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

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

Diversification Opportunities for CAT Strategic and Arizona Lithium

-0.16

Correlation Coefficient

CAT Strategic  Arizona Lithium

Good diversification

The 3 months correlation between CAT and Arizona is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding CAT Strategic Metals and Arizona Lithium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arizona Lithium and CAT Strategic 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 CAT Strategic Metals are associated (or correlated) with Arizona Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arizona Lithium has no effect on the direction of CAT Strategic i.e., CAT Strategic and Arizona Lithium go up and down completely randomly.

Pair Corralation between CAT Strategic and Arizona Lithium

Assuming the 90 days horizon CAT Strategic Metals is expected to generate 2.53 times more return on investment than Arizona Lithium. However, CAT Strategic is 2.53 times more volatile than Arizona Lithium Limited. It trades about 0.12 of its potential returns per unit of risk. Arizona Lithium Limited is currently generating about 0.02 per unit of risk. If you would invest  0.43  in CAT Strategic Metals on September 14, 2024 and sell it today you would lose (0.03) from holding CAT Strategic Metals or give up 6.98% of portfolio value over 90 days.

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

CAT Strategic Metals  vs.  Arizona Lithium Limited

CAT Strategic Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CAT Strategic Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CAT Strategic reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with CAT Strategic and Arizona Lithium

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

The idea behind CAT Strategic Metals and Arizona Lithium 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.