Correlation Between Rock Tech and Liontown Resources

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

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

Diversification Opportunities for Rock Tech and Liontown Resources

0.36

Correlation Coefficient

Rock Tech  Liontown Resources

Weak diversification

The 3 months correlation between Rock and Liontown is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Rock Tech Lithium and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources and Rock Tech 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 Rock Tech Lithium are associated (or correlated) with Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of Rock Tech i.e., Rock Tech and Liontown Resources go up and down completely randomly.

Pair Corralation between Rock Tech and Liontown Resources

Assuming the 90 days trading horizon Rock Tech Lithium is expected to under-perform the Liontown Resources. But the stock apears to be less risky and, when comparing its historical volatility, Rock Tech Lithium is 4.0 times less risky than Liontown Resources. The stock trades about -0.03 of its potential returns per unit of risk. The Liontown Resources Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  38.00  in Liontown Resources Limited on September 5, 2024 and sell it today you would earn a total of  6.00  from holding Liontown Resources Limited or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Rock Tech Lithium  vs.  Liontown Resources Limited

Rock Tech Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Liontown Resources

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Rock Tech and Liontown Resources

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

The idea behind Rock Tech Lithium and Liontown Resources Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.