Just how risky is buying Core Lithium shares right now?

Core Lithium Ltd (ASX: CXO) shares are enjoying a good run today, up 3.9% at the time of writing.

At $1.08 per share, that puts the S&P/ASX 200 Index (ASX: XJO) lithium stock up 7% in 2023.

Longer-term, shares are down 5% over the past 12 months and up 315% over the past two years.

So, just how risky is it to buy Core Lithium shares right now?

The ups and downs of Core Lithium shares

As you can see in the chart above, long-term investors in Core Lithium need to be able to tolerate the stock's significant volatility.

Over the past 12 months, the ASX 200 lithium miner traded for a high of $1.87 on 14 November. That came right about the time that lithium prices were trading at all-time highs.

But with lithium prices crashing some 70% from there, the Core Lithium share price tumbled to 73 cents on 23 March. As lithium prices began to rebound, so too did Core Lithium shares.

Now, there are two risks to highlight here.

First, the volatility itself presents a risk that investors may buy on an upswing, then panic and sell as the stock tumbles.

At today's share price, Core Lithium stock remains down 25% from the 14 November high-water mark. So buying right now could offer investors some significant potential upside. But that leads to a second risk.

The value of Core Lithium shares is closely linked to the price of lithium.

The price of the battery critical metal has rebounded from its recent lows. But there are widely varying forecasts from a range of industry experts on what investors can expect from the lithium price over the months and years ahead.

That uncertainty presents a big risk, should lithium prices be softer than the market is currently pricing in.

Of course, if lithium prices climb higher than broadly forecast, this would be a boon for investors in the ASX 200 miner.

What are the other risk and reward trade-offs?

As The Motley Fool's Brooke Cooper recently pointed out, Core Lithium shares trade at a premium to the company's peers.

"Its valuation sits at 1.4 times its net asset value, compared to an average of around 1.1 times among its peers," she said.

This could see the share price pressured if investors opt to back some of the other ASX lithium producers trading at lower valuations.

Cooper also noted that Core Lithium often finds itself amongst the top shorted stocks on the exchange.

"While short sellers don't have a direct impact on a company or its stock, the cynicism they represent can reflect market sentiment, thereby creating a risk of its own," she said.

Those are all risks to keep in mind when considering buying Core Lithium shares right now.

On the reward side, Core Lithium's flagship Finniss Lithium Project, located in close proximity to Port Darwin, achieved its first spodumene concentrate production in February.

On completion, Finniss is expected to produce 160,000 tonnes of battery-grade lithium concentrate annually over its initial 12-year mine life.

While Finniss has a smaller resource than some of the projects owned by competing ASX 200 lithium miners, Core is spending big on exploration. The company recently announced a record $25 million drilling campaign to extend the life of its mines and test expansion potential.

Core Lithium shares also should be supported by the range of other projects (lithium and uranium) the miner owns in the Northern Territory and South Australia.

Also reducing the risk is the company's strong liquidity position, reporting $98 million in cash holdings as at 31 March.