Correlation Between Eisai and US Lithium

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

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

Diversification Opportunities for Eisai and US Lithium

0.21

Correlation Coefficient

Eisai  US Lithium

Modest diversification

The 3 months correlation between Eisai and LITH is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Eisai Co 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 Eisai 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 Eisai Co 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 Eisai i.e., Eisai and US Lithium go up and down completely randomly.

Pair Corralation between Eisai and US Lithium

Assuming the 90 days horizon Eisai Co is expected to generate 0.08 times more return on investment than US Lithium. However, Eisai Co is 11.77 times less risky than US Lithium. It trades about -0.33 of its potential returns per unit of risk. US Lithium Corp is currently generating about -0.22 per unit of risk. If you would invest  772.00  in Eisai Co on September 19, 2024 and sell it today you would lose (73.00) from holding Eisai Co or give up 9.46% of portfolio value over 90 days.

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

Eisai Co  vs.  US Lithium Corp

Eisai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Eisai and US Lithium

The main advantage of trading using opposite Eisai and US Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eisai 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 Eisai Co 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.