Correlation Between United Lithium and American Lithium
Can any of the company-specific risk be diversified away by investing in both United 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 United 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 United Lithium Corp and American Lithium Corp, you can compare the effects of market volatilities on United 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 United Lithium with a short position of American Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Lithium and American Lithium.
Diversification Opportunities for United Lithium and American Lithium
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between United and American is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding United Lithium Corp and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and United 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 United 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 Corp has no effect on the direction of United Lithium i.e., United Lithium and American Lithium go up and down completely randomly.
Pair Corralation between United Lithium and American Lithium
Assuming the 90 days horizon United Lithium Corp is expected to under-perform the American Lithium. In addition to that, United Lithium is 2.91 times more volatile than American Lithium Corp. It trades about -0.09 of its total potential returns per unit of risk. American Lithium Corp is currently generating about -0.22 per unit of volatility. If you would invest 82.00 in American Lithium Corp on August 29, 2024 and sell it today you would lose (16.00) from holding American Lithium Corp or give up 19.51% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Lithium Corp vs. American Lithium Corp
Performance |
| Timeline |
| United Lithium Corp |
| American Lithium Corp |
United Lithium and American Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Lithium and American Lithium
The main advantage of trading using opposite United Lithium and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United 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.The idea behind United Lithium Corp and American Lithium Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| American Lithium vs. Dave Busters Entertainment | American Lithium vs. Boyd Gaming | American Lithium vs. Playa Hotels Resorts | American Lithium vs. Corsair Gaming |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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