Correlation Between Pure Energy and Core Lithium

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

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

Diversification Opportunities for Pure Energy and Core Lithium

0.21

Correlation Coefficient

Pure Energy  Core Lithium

Modest diversification

The 3 months correlation between Pure and Core is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Pure Energy Minerals and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium and Pure Energy 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 Pure Energy Minerals are associated (or correlated) with Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Pure Energy i.e., Pure Energy and Core Lithium go up and down completely randomly.

Pair Corralation between Pure Energy and Core Lithium

Assuming the 90 days horizon Pure Energy is expected to generate 4.04 times less return on investment than Core Lithium. But when comparing it to its historical volatility, Pure Energy Minerals is 2.72 times less risky than Core Lithium. It trades about 0.04 of its potential returns per unit of risk. Core Lithium is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5.75  in Core Lithium on September 15, 2024 and sell it today you would lose (0.27) from holding Core Lithium or give up 4.7% of portfolio value over 90 days.

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

Pure Energy Minerals  vs.  Core Lithium

Pure Energy Minerals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Energy Minerals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Pure Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Core Lithium

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Pure Energy and Core Lithium

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

The idea behind Pure Energy Minerals and Core Lithium 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.