Correlation Between Focus Graphite and Global Li

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

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

Diversification Opportunities for Focus Graphite and Global Li

0.32

Correlation Coefficient

Focus Graphite  Global Li

Weak diversification

The 3 months correlation between Focus and Global is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Focus Graphite and Global Li Ion Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Li Ion and Focus Graphite 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 Focus Graphite are associated (or correlated) with Global Li. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Li Ion has no effect on the direction of Focus Graphite i.e., Focus Graphite and Global Li go up and down completely randomly.

Pair Corralation between Focus Graphite and Global Li

Assuming the 90 days horizon Focus Graphite is expected to generate 1.17 times less return on investment than Global Li. But when comparing it to its historical volatility, Focus Graphite is 1.75 times less risky than Global Li. It trades about 0.04 of its potential returns per unit of risk. Global Li Ion Graphite is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1.98  in Global Li Ion Graphite on September 14, 2024 and sell it today you would lose (0.72) from holding Global Li Ion Graphite or give up 36.36% of portfolio value over 90 days.

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

Focus Graphite  vs.  Global Li Ion Graphite

Focus Graphite

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Graphite are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Focus Graphite reported solid returns over the last few months and may actually be approaching a breakup point.

Global Li Ion

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Li Ion Graphite are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Global Li reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Graphite and Global Li

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

The idea behind Focus Graphite and Global Li Ion Graphite 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.