Correlation Between Australian Vanadium and Ameriwest Lithium

Can any of the company-specific risk be diversified away by investing in both Australian Vanadium and Ameriwest 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 Australian Vanadium and Ameriwest Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Australian Vanadium Limited and Ameriwest Lithium, you can compare the effects of market volatilities on Australian Vanadium and Ameriwest 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 Australian Vanadium with a short position of Ameriwest Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Vanadium and Ameriwest Lithium.

Diversification Opportunities for Australian Vanadium and Ameriwest Lithium

0.3

Correlation Coefficient

Australian Vanadium  Ameriwest Lithium

Weak diversification

The 3 months correlation between Australian and Ameriwest is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Australian Vanadium Limited and Ameriwest Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriwest Lithium and Australian Vanadium 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 Australian Vanadium Limited are associated (or correlated) with Ameriwest Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriwest Lithium has no effect on the direction of Australian Vanadium i.e., Australian Vanadium and Ameriwest Lithium go up and down completely randomly.

Pair Corralation between Australian Vanadium and Ameriwest Lithium

Assuming the 90 days horizon Australian Vanadium Limited is expected to under-perform the Ameriwest Lithium. In addition to that, Australian Vanadium is 1.68 times more volatile than Ameriwest Lithium. It trades about -0.08 of its total potential returns per unit of risk. Ameriwest Lithium is currently generating about -0.03 per unit of volatility. If you would invest  14.00  in Ameriwest Lithium on September 3, 2024 and sell it today you would lose (3.00) from holding Ameriwest Lithium or give up 21.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Australian Vanadium Limited  vs.  Ameriwest Lithium

Australian Vanadium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Vanadium Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ameriwest Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ameriwest Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Australian Vanadium and Ameriwest Lithium

The main advantage of trading using opposite Australian Vanadium and Ameriwest Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Vanadium position performs unexpectedly, Ameriwest 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 Ameriwest Lithium will offset losses from the drop in Ameriwest Lithium's long position.

The idea behind Australian Vanadium Limited and Ameriwest Lithium 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.