Correlation Between Lobe Sciences and US Lithium

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

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

Diversification Opportunities for Lobe Sciences and US Lithium

0.07

Correlation Coefficient

Lobe Sciences  US Lithium

Significant diversification

The 3 months correlation between Lobe and LITH is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Lobe Sciences and US Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Lithium Corp and Lobe Sciences 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 Lobe Sciences are associated (or correlated) with US Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Lithium Corp has no effect on the direction of Lobe Sciences i.e., Lobe Sciences and US Lithium go up and down completely randomly.

Pair Corralation between Lobe Sciences and US Lithium

Assuming the 90 days horizon Lobe Sciences is expected to generate 12.33 times more return on investment than US Lithium. However, Lobe Sciences is 12.33 times more volatile than US Lithium Corp. It trades about 0.2 of its potential returns per unit of risk. US Lithium Corp is currently generating about -0.21 per unit of risk. If you would invest  0.14  in Lobe Sciences on September 19, 2024 and sell it today you would lose (0.02) from holding Lobe Sciences or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Lobe Sciences  vs.  US Lithium Corp

Lobe Sciences

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lobe Sciences are ranked lower than 22 (%) 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.

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.

Pair Trading with Lobe Sciences and US Lithium

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

The idea behind Lobe Sciences and US Lithium Corp 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.