Correlation Between Enbridge H and Lithium Americas

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

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

Diversification Opportunities for Enbridge H and Lithium Americas

-0.57

Correlation Coefficient

Enbridge H  Lithium Americas

Excellent diversification

The 3 months correlation between Enbridge and Lithium is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge H Cum and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp and Enbridge H 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 Enbridge H Cum are associated (or correlated) with Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of Enbridge H i.e., Enbridge H and Lithium Americas go up and down completely randomly.

Pair Corralation between Enbridge H and Lithium Americas

Assuming the 90 days trading horizon Enbridge H is expected to generate 19.69 times less return on investment than Lithium Americas. But when comparing it to its historical volatility, Enbridge H Cum is 13.55 times less risky than Lithium Americas. It trades about 0.07 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  331.00  in Lithium Americas Corp on September 24, 2024 and sell it today you would earn a total of  96.00  from holding Lithium Americas Corp or generate 29.0% return on investment over 90 days.

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

Enbridge H Cum  vs.  Lithium Americas Corp

Enbridge H Cum

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge H Cum are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Enbridge H is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Lithium Americas Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Lithium Americas displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge H and Lithium Americas

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

The idea behind Enbridge H Cum and Lithium Americas 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.