Correlation Between Tearlach Resources and Nova Lithium

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

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

Diversification Opportunities for Tearlach Resources and Nova Lithium

-0.39

Correlation Coefficient

Tearlach Resources  Nova Lithium

Very good diversification

The 3 months correlation between Tearlach and Nova is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tearlach Resources Limited and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp and Tearlach Resources 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 Tearlach Resources Limited are associated (or correlated) with Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of Tearlach Resources i.e., Tearlach Resources and Nova Lithium go up and down completely randomly.

Pair Corralation between Tearlach Resources and Nova Lithium

Assuming the 90 days horizon Tearlach Resources Limited is expected to generate 2.6 times more return on investment than Nova Lithium. However, Tearlach Resources is 2.6 times more volatile than Nova Lithium Corp. It trades about 0.13 of its potential returns per unit of risk. Nova Lithium Corp is currently generating about 0.0 per unit of risk. If you would invest  1.32  in Tearlach Resources Limited on September 4, 2024 and sell it today you would earn a total of  0.98  from holding Tearlach Resources Limited or generate 74.24% return on investment over 90 days.

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

Tearlach Resources Limited  vs.  Nova Lithium Corp

Tearlach Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tearlach Resources Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical indicators, Tearlach Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Nova Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Nova Lithium is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tearlach Resources and Nova Lithium

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

The idea behind Tearlach Resources Limited and Nova 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.