Correlation Between Charlottes Web and US Lithium

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

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

Diversification Opportunities for Charlottes Web and US Lithium

0.25

Correlation Coefficient

Charlottes Web  US Lithium

Modest diversification

The 3 months correlation between Charlottes and LITH is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Charlottes Web Holdings and US Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Lithium Corp and Charlottes Web 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 Charlottes Web Holdings are associated (or correlated) with US Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Lithium Corp has no effect on the direction of Charlottes Web i.e., Charlottes Web and US Lithium go up and down completely randomly.

Pair Corralation between Charlottes Web and US Lithium

Assuming the 90 days horizon Charlottes Web Holdings is expected to generate 0.48 times more return on investment than US Lithium. However, Charlottes Web Holdings is 2.07 times less risky than US Lithium. It trades about -0.06 of its potential returns per unit of risk. US Lithium Corp is currently generating about -0.13 per unit of risk. If you would invest  14.00  in Charlottes Web Holdings on September 20, 2024 and sell it today you would lose (3.00) from holding Charlottes Web Holdings 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

Charlottes Web Holdings  vs.  US Lithium Corp

Charlottes Web Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charlottes Web Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical 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.

US Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Charlottes Web and US Lithium

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

The idea behind Charlottes Web Holdings and US 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.