Correlation Between US Lithium and Lobe Sciences

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

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

Diversification Opportunities for US Lithium and Lobe Sciences

-0.4

Correlation Coefficient

US Lithium  Lobe Sciences

Very good diversification

The 3 months correlation between LITH and Lobe is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding US Lithium Corp and Lobe Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lobe Sciences and US 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 US Lithium Corp are associated (or correlated) with Lobe Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lobe Sciences has no effect on the direction of US Lithium i.e., US Lithium and Lobe Sciences go up and down completely randomly.

Pair Corralation between US Lithium and Lobe Sciences

Given the investment horizon of 90 days US Lithium is expected to generate 574.12 times less return on investment than Lobe Sciences. But when comparing it to its historical volatility, US Lithium Corp is 34.77 times less risky than Lobe Sciences. It trades about 0.01 of its potential returns per unit of risk. Lobe Sciences is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3.15  in Lobe Sciences on September 20, 2024 and sell it today you would lose (0.89) from holding Lobe Sciences or give up 28.25% of portfolio value over 90 days.

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

US Lithium Corp  vs.  Lobe Sciences

US Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Lobe Sciences

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lobe Sciences are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Lobe Sciences reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Lithium and Lobe Sciences

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

The idea behind US Lithium Corp and Lobe Sciences 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.