Correlation Between Sprott Lithium and Sprott Junior

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

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

Diversification Opportunities for Sprott Lithium and Sprott Junior

0.87

Correlation Coefficient

Sprott Lithium  Sprott Junior

Very poor diversification

The 3 months correlation between Sprott and Sprott is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Lithium Miners and Sprott Junior Uranium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Junior Uranium and Sprott Lithium 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 Sprott Lithium Miners are associated (or correlated) with Sprott Junior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Junior Uranium has no effect on the direction of Sprott Lithium i.e., Sprott Lithium and Sprott Junior go up and down completely randomly.

Pair Corralation between Sprott Lithium and Sprott Junior

Given the investment horizon of 90 days Sprott Lithium is expected to generate 1.25 times less return on investment than Sprott Junior. In addition to that, Sprott Lithium is 1.08 times more volatile than Sprott Junior Uranium. It trades about 0.07 of its total potential returns per unit of risk. Sprott Junior Uranium is currently generating about 0.1 per unit of volatility. If you would invest  1,953  in Sprott Junior Uranium on August 29, 2024 and sell it today you would earn a total of  359.00  from holding Sprott Junior Uranium or generate 18.38% return on investment over 90 days.

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

Sprott Lithium Miners  vs.  Sprott Junior Uranium

Sprott Lithium Miners

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Lithium Miners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sprott Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Sprott Junior Uranium

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Junior Uranium are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish basic indicators, Sprott Junior revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sprott Lithium and Sprott Junior

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

The idea behind Sprott Lithium Miners and Sprott Junior Uranium 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 Stocks Directory module to find actively traded stocks across global markets.