Correlation Between Nova Lithium and American Lithium
Can any of the company-specific risk be diversified away by investing in both Nova Lithium and American 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 Nova Lithium and American Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nova Lithium Corp and American Lithium Minerals, you can compare the effects of market volatilities on Nova Lithium and American 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 Nova Lithium with a short position of American Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova Lithium and American Lithium.
Diversification Opportunities for Nova Lithium and American Lithium
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nova and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Nova Lithium Corp and American Lithium Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Minerals and Nova 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 Nova Lithium Corp are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Minerals has no effect on the direction of Nova Lithium i.e., Nova Lithium and American Lithium go up and down completely randomly.
Pair Corralation between Nova Lithium and American Lithium
Assuming the 90 days horizon Nova Lithium is expected to generate 2.9 times less return on investment than American Lithium. But when comparing it to its historical volatility, Nova Lithium Corp is 2.15 times less risky than American Lithium. It trades about 0.07 of its potential returns per unit of risk. American Lithium Minerals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2.38 in American Lithium Minerals on October 26, 2024 and sell it today you would earn a total of 1.37 from holding American Lithium Minerals or generate 57.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.19% |
| Values | Daily Returns |
Nova Lithium Corp vs. American Lithium Minerals
Performance |
| Timeline |
| Nova Lithium Corp |
| American Lithium Minerals |
Nova Lithium and American Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nova Lithium and American Lithium
The main advantage of trading using opposite Nova Lithium and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova Lithium position performs unexpectedly, American 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 American Lithium will offset losses from the drop in American Lithium's long position.| Nova Lithium vs. WK Kellogg Co | Nova Lithium vs. Kellanova | Nova Lithium vs. Village Super Market | Nova Lithium vs. Coffee Holding Co |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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