Correlation Between Lithium Australia and African Rainbow

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

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

Diversification Opportunities for Lithium Australia and African Rainbow

-0.48

Correlation Coefficient

Lithium Australia  African Rainbow

Very good diversification

The 3 months correlation between Lithium and African is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Australia NL and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and Lithium Australia 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 Lithium Australia NL are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of Lithium Australia i.e., Lithium Australia and African Rainbow go up and down completely randomly.

Pair Corralation between Lithium Australia and African Rainbow

If you would invest  0.01  in Lithium Australia NL on September 14, 2024 and sell it today you would earn a total of  0.97  from holding Lithium Australia NL or generate 9700.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

Lithium Australia NL  vs.  African Rainbow Minerals

Lithium Australia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Australia NL are ranked lower than 9 (%) 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.

African Rainbow Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Rainbow Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, African Rainbow is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lithium Australia and African Rainbow

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

The idea behind Lithium Australia NL and African Rainbow Minerals 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.