Correlation Between Latin Resources and United Lithium

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

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

Diversification Opportunities for Latin Resources and United Lithium

0.28

Correlation Coefficient

Latin Resources  United Lithium

Modest diversification

The 3 months correlation between Latin and United is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Latin Resources Limited and United Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Lithium Corp and Latin Resources 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 Latin Resources Limited are associated (or correlated) with United Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Lithium Corp has no effect on the direction of Latin Resources i.e., Latin Resources and United Lithium go up and down completely randomly.

Pair Corralation between Latin Resources and United Lithium

Assuming the 90 days horizon Latin Resources is expected to generate 11.62 times less return on investment than United Lithium. But when comparing it to its historical volatility, Latin Resources Limited is 4.94 times less risky than United Lithium. It trades about 0.01 of its potential returns per unit of risk. United Lithium Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18.00  in United Lithium Corp on September 13, 2024 and sell it today you would lose (3.00) from holding United Lithium Corp or give up 16.67% of portfolio value over 90 days.

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

Latin Resources Limited  vs.  United Lithium Corp

Latin Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

United Lithium Corp

Risk-Adjusted Performance

2 of 100

Insignificant

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

Pair Trading with Latin Resources and United Lithium

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

The idea behind Latin Resources Limited and United 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.