Correlation Between CanAlaska Uranium and Lithium Australia

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

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

Diversification Opportunities for CanAlaska Uranium and Lithium Australia

0.28

Correlation Coefficient

CanAlaska Uranium  Lithium Australia

Modest diversification

The 3 months correlation between CanAlaska and Lithium is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding CanAlaska Uranium and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and CanAlaska Uranium 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 CanAlaska Uranium are associated (or correlated) with Lithium Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Australia has no effect on the direction of CanAlaska Uranium i.e., CanAlaska Uranium and Lithium Australia go up and down completely randomly.

Pair Corralation between CanAlaska Uranium and Lithium Australia

Assuming the 90 days horizon CanAlaska Uranium is expected to generate 62.35 times less return on investment than Lithium Australia. But when comparing it to its historical volatility, CanAlaska Uranium is 40.78 times less risky than Lithium Australia. It trades about 0.08 of its potential returns per unit of risk. Lithium Australia NL is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Lithium Australia NL on September 13, 2024 and sell it today you would earn a total of  0.98  from holding Lithium Australia NL or generate 9800.0% return on investment over 90 days.

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

CanAlaska Uranium  vs.  Lithium Australia NL

CanAlaska Uranium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CanAlaska Uranium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, CanAlaska Uranium reported solid returns over the last few months and may actually be approaching a breakup point.

Lithium Australia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Australia NL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Lithium Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CanAlaska Uranium and Lithium Australia

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

The idea behind CanAlaska Uranium and Lithium Australia NL 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.