Correlation Between Core Lithium and Bullion Gold

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

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

Diversification Opportunities for Core Lithium and Bullion Gold

0.21

Correlation Coefficient

Core Lithium  Bullion Gold

Modest diversification

The 3 months correlation between Core and Bullion is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Bullion Gold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bullion Gold Resources and Core 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 Core Lithium are associated (or correlated) with Bullion Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bullion Gold Resources has no effect on the direction of Core Lithium i.e., Core Lithium and Bullion Gold go up and down completely randomly.

Pair Corralation between Core Lithium and Bullion Gold

Assuming the 90 days horizon Core Lithium is expected to generate 4.42 times more return on investment than Bullion Gold. However, Core Lithium is 4.42 times more volatile than Bullion Gold Resources. It trades about 0.06 of its potential returns per unit of risk. Bullion Gold Resources is currently generating about 0.12 per unit of risk. If you would invest  5.75  in Core Lithium on September 15, 2024 and sell it today you would lose (0.27) from holding Core Lithium or give up 4.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Core Lithium  vs.  Bullion Gold Resources

Core Lithium

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Core Lithium are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Core Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Bullion Gold Resources

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Core Lithium and Bullion Gold

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

The idea behind Core Lithium and Bullion Gold 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.