Correlation Between Global Battery and Core Lithium

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

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

Diversification Opportunities for Global Battery and Core Lithium

-0.21

Correlation Coefficient

Global Battery  Core Lithium

Very good diversification

The 3 months correlation between Global and Core is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Global Battery Metals and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium and Global Battery 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 Global Battery Metals 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 Global Battery i.e., Global Battery and Core Lithium go up and down completely randomly.

Pair Corralation between Global Battery and Core Lithium

Assuming the 90 days horizon Global Battery Metals is expected to generate 0.9 times more return on investment than Core Lithium. However, Global Battery Metals is 1.12 times less risky than Core Lithium. It trades about 0.07 of its potential returns per unit of risk. Core Lithium is currently generating about 0.03 per unit of risk. If you would invest  1.45  in Global Battery Metals on September 27, 2024 and sell it today you would earn a total of  0.15  from holding Global Battery Metals or generate 10.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Global Battery Metals  vs.  Core Lithium

Global Battery Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Battery Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Global Battery reported solid returns over the last few months and may actually be approaching a breakup point.

Core Lithium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Core Lithium are ranked lower than 2 (%) 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 Global Battery and Core Lithium

The main advantage of trading using opposite Global Battery and Core Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Battery 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 Global Battery Metals 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.