Correlation Between Critical Elements and Frontier Lithium

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

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

Diversification Opportunities for Critical Elements and Frontier Lithium

0.03

Correlation Coefficient

Critical Elements  Frontier Lithium

Significant diversification

The 3 months correlation between Critical and Frontier is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Critical Elements and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and Critical Elements 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 Critical Elements 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 Critical Elements i.e., Critical Elements and Frontier Lithium go up and down completely randomly.

Pair Corralation between Critical Elements and Frontier Lithium

Assuming the 90 days horizon Critical Elements is expected to generate 1.44 times more return on investment than Frontier Lithium. However, Critical Elements is 1.44 times more volatile than Frontier Lithium. It trades about 0.05 of its potential returns per unit of risk. Frontier Lithium is currently generating about -0.14 per unit of risk. If you would invest  26.00  in Critical Elements on September 9, 2024 and sell it today you would earn a total of  2.00  from holding Critical Elements or generate 7.69% return on investment over 90 days.

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

Critical Elements  vs.  Frontier Lithium

Critical Elements

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Critical Elements reported solid returns over the last few months and may actually be approaching a breakup point.

Frontier Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontier Lithium 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.

Pair Trading with Critical Elements and Frontier Lithium

The main advantage of trading using opposite Critical Elements and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Critical Elements 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.

The idea behind Critical Elements and Frontier 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.