Correlation Between LithiumBank Resources and ARCA Japan

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

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

Diversification Opportunities for LithiumBank Resources and ARCA Japan

-0.48

Correlation Coefficient

LithiumBank Resources  ARCA Japan

Very good diversification

The 3 months correlation between LithiumBank and ARCA is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding LithiumBank Resources Corp and ARCA Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Japan and LithiumBank 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 LithiumBank Resources Corp are associated (or correlated) with ARCA Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Japan has no effect on the direction of LithiumBank Resources i.e., LithiumBank Resources and ARCA Japan go up and down completely randomly.

Pair Corralation between LithiumBank Resources and ARCA Japan

Assuming the 90 days horizon LithiumBank Resources Corp is expected to under-perform the ARCA Japan. In addition to that, LithiumBank Resources is 5.8 times more volatile than ARCA Japan. It trades about -0.17 of its total potential returns per unit of risk. ARCA Japan is currently generating about -0.19 per unit of volatility. If you would invest  36,419  in ARCA Japan on September 7, 2024 and sell it today you would lose (565.00) from holding ARCA Japan or give up 1.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	61.9%
Values	Daily Returns

LithiumBank Resources Corp  vs.  ARCA Japan

Pair Trading with LithiumBank Resources and ARCA Japan

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

The idea behind LithiumBank Resources Corp and ARCA Japan 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.