Correlation Between IGO and Lithium Australia

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

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

Diversification Opportunities for IGO and Lithium Australia

0.12

Correlation Coefficient

IGO  Lithium Australia

Average diversification

The 2 months correlation between IGO and Lithium is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Lithium Australia NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Australia and IGO 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 IGO Limited are associated (or correlated) with Lithium Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Australia has no effect on the direction of IGO i.e., IGO and Lithium Australia go up and down completely randomly.

Pair Corralation between IGO and Lithium Australia

Assuming the 90 days horizon IGO Limited is expected to generate 0.08 times more return on investment than Lithium Australia. However, IGO Limited is 12.07 times less risky than Lithium Australia. It trades about 0.17 of its potential returns per unit of risk. Lithium Australia NL is currently generating about -0.01 per unit of risk. If you would invest  489.00  in IGO Limited on February 26, 2024 and sell it today you would earn a total of  21.00  from holding IGO Limited or generate 4.29% return on investment over 90 days.

Time Period	2 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

IGO Limited  vs.  Lithium Australia NL

IGO Limited

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IGO Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, IGO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lithium Australia

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Australia NL are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Lithium Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGO and Lithium Australia

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

The idea behind IGO Limited and Lithium Australia NL 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..