Correlation Between Lithium Energi and Sienna Resources

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

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

Diversification Opportunities for Lithium Energi and Sienna Resources

0.76

Correlation Coefficient

Lithium Energi  Sienna Resources

Poor diversification

The 3 months correlation between Lithium and Sienna is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Energi Exploration and Sienna Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sienna Resources and Lithium Energi 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 Energi Exploration are associated (or correlated) with Sienna Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sienna Resources has no effect on the direction of Lithium Energi i.e., Lithium Energi and Sienna Resources go up and down completely randomly.

Pair Corralation between Lithium Energi and Sienna Resources

Assuming the 90 days horizon Lithium Energi Exploration is expected to under-perform the Sienna Resources. In addition to that, Lithium Energi is 1.01 times more volatile than Sienna Resources. It trades about -0.08 of its total potential returns per unit of risk. Sienna Resources is currently generating about -0.02 per unit of volatility. If you would invest  2.79  in Sienna Resources on September 15, 2024 and sell it today you would lose (0.81) from holding Sienna Resources or give up 29.03% of portfolio value over 90 days.

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

Lithium Energi Exploration  vs.  Sienna Resources

Lithium Energi Explo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lithium Energi Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sienna Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sienna Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Lithium Energi and Sienna Resources

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

The idea behind Lithium Energi Exploration and Sienna Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.