Correlation Between E3 Lithium and Frontier Lithium
Can any of the company-specific risk be diversified away by investing in both E3 Lithium and Frontier 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 E3 Lithium and Frontier Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between E3 Lithium and Frontier Lithium, you can compare the effects of market volatilities on E3 Lithium and Frontier 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 E3 Lithium with a short position of Frontier Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of E3 Lithium and Frontier Lithium.
Diversification Opportunities for E3 Lithium and Frontier Lithium
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ETL and Frontier is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding E3 Lithium and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and E3 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 E3 Lithium are associated (or correlated) with Frontier Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Lithium has no effect on the direction of E3 Lithium i.e., E3 Lithium and Frontier Lithium go up and down completely randomly.
Pair Corralation between E3 Lithium and Frontier Lithium
Assuming the 90 days horizon E3 Lithium is expected to under-perform the Frontier Lithium. But the stock apears to be less risky and, when comparing its historical volatility, E3 Lithium is 1.34 times less risky than Frontier Lithium. The stock trades about -0.33 of its potential returns per unit of risk. The Frontier Lithium is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 58.00 in Frontier Lithium on August 24, 2024 and sell it today you would lose (6.00) from holding Frontier Lithium or give up 10.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
E3 Lithium vs. Frontier Lithium
Performance |
| Timeline |
| E3 Lithium |
| Frontier Lithium |
E3 Lithium and Frontier Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with E3 Lithium and Frontier Lithium
The main advantage of trading using opposite E3 Lithium and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E3 Lithium position performs unexpectedly, Frontier 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 Frontier Lithium will offset losses from the drop in Frontier Lithium's long position.| E3 Lithium vs. Frontier Lithium | E3 Lithium vs. Sigma Lithium Resources | E3 Lithium vs. Standard Lithium | E3 Lithium vs. LithiumBank Resources Corp |
| Frontier Lithium vs. Critical Elements | Frontier Lithium vs. Rock Tech Lithium | Frontier Lithium vs. American Lithium Corp | Frontier Lithium vs. American Manganese |
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 Stocks Directory module to find actively traded stocks across global markets.
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