Correlation Between American Lithium and Lithium Americas
Can any of the company-specific risk be diversified away by investing in both American Lithium and Lithium Americas 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 American Lithium and Lithium Americas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Lithium Corp and Lithium Americas Corp, you can compare the effects of market volatilities on American Lithium and Lithium Americas 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 American Lithium with a short position of Lithium Americas. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Lithium and Lithium Americas.
Diversification Opportunities for American Lithium and Lithium Americas
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Lithium is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Lithium Corp and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp and American 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 American Lithium Corp are associated (or correlated) with Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of American Lithium i.e., American Lithium and Lithium Americas go up and down completely randomly.
Pair Corralation between American Lithium and Lithium Americas
Given the investment horizon of 90 days American Lithium Corp is expected to under-perform the Lithium Americas. But the stock apears to be less risky and, when comparing its historical volatility, American Lithium Corp is 1.18 times less risky than Lithium Americas. The stock trades about -0.19 of its potential returns per unit of risk. The Lithium Americas Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 414.00 in Lithium Americas Corp on August 27, 2024 and sell it today you would lose (17.00) from holding Lithium Americas Corp or give up 4.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Lithium Corp vs. Lithium Americas Corp
Performance |
| Timeline |
| American Lithium Corp |
| Lithium Americas Corp |
American Lithium and Lithium Americas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Lithium and Lithium Americas
The main advantage of trading using opposite American Lithium and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Lithium position performs unexpectedly, Lithium Americas 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 Americas will offset losses from the drop in Lithium Americas' long position.| American Lithium vs. Cedar Realty Trust | American Lithium vs. Lipocine | American Lithium vs. Acm Research | American Lithium vs. Artisan Partners Asset |
| Lithium Americas vs. Vale SA ADR | Lithium Americas vs. Teck Resources Ltd | Lithium Americas vs. BHP Group Limited | Lithium Americas vs. Glencore PLC ADR |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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