Correlation Between Lynas Rare and International Lithium

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

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

Diversification Opportunities for Lynas Rare and International Lithium

0.2

Correlation Coefficient

Lynas Rare  International Lithium

Modest diversification

The 3 months correlation between Lynas and International is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Lynas Rare Earths and International Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Lithium and Lynas Rare 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 Lynas Rare Earths are associated (or correlated) with International Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Lithium has no effect on the direction of Lynas Rare i.e., Lynas Rare and International Lithium go up and down completely randomly.

Pair Corralation between Lynas Rare and International Lithium

Assuming the 90 days horizon Lynas Rare Earths is expected to under-perform the International Lithium. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lynas Rare Earths is 3.99 times less risky than International Lithium. The pink sheet trades about -0.25 of its potential returns per unit of risk. The International Lithium Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.35  in International Lithium Corp on September 4, 2024 and sell it today you would lose (0.07) from holding International Lithium Corp or give up 5.19% of portfolio value over 90 days.

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

Lynas Rare Earths  vs.  International Lithium Corp

Lynas Rare Earths

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lynas Rare Earths are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Lynas Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

International Lithium

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Lithium Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, International Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lynas Rare and International Lithium

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

The idea behind Lynas Rare Earths and International 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.