Correlation Between ACME Lithium and United Lithium
Can any of the company-specific risk be diversified away by investing in both ACME Lithium and United 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 ACME Lithium and United Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ACME Lithium and United Lithium Corp, you can compare the effects of market volatilities on ACME Lithium and United 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 ACME Lithium with a short position of United Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of ACME Lithium and United Lithium.
Diversification Opportunities for ACME Lithium and United Lithium
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between ACME and United is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding ACME Lithium and United Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Lithium Corp and ACME 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 ACME Lithium are associated (or correlated) with United Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Lithium Corp has no effect on the direction of ACME Lithium i.e., ACME Lithium and United Lithium go up and down completely randomly.
Pair Corralation between ACME Lithium and United Lithium
Assuming the 90 days horizon ACME Lithium is expected to under-perform the United Lithium. But the otc stock apears to be less risky and, when comparing its historical volatility, ACME Lithium is 1.37 times less risky than United Lithium. The otc stock trades about -0.02 of its potential returns per unit of risk. The United Lithium Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 49.00 in United Lithium Corp on September 2, 2024 and sell it today you would lose (38.00) from holding United Lithium Corp or give up 77.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ACME Lithium vs. United Lithium Corp
Performance |
| Timeline |
| ACME Lithium |
| United Lithium Corp |
ACME Lithium and United Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ACME Lithium and United Lithium
The main advantage of trading using opposite ACME Lithium and United Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACME Lithium position performs unexpectedly, United 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 United Lithium will offset losses from the drop in United Lithium's long position.| ACME Lithium vs. United Lithium Corp | ACME Lithium vs. Alpha Copper Corp | ACME Lithium vs. REDFLEX HOLDINGS LTD | ACME Lithium vs. Global Helium Corp |
| United Lithium vs. Alpha Copper Corp | United Lithium vs. REDFLEX HOLDINGS LTD | United Lithium vs. Global Helium Corp | United Lithium vs. Ridgestone Mining |
Check out your portfolio center.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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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