Correlation Between E3 Lithium and Frontier Lithium

Can any of the company-specific risk be diversified away by investing in both E3 Lithium 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 E3 Lithium and Frontier Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E3 Lithium and Frontier Lithium, you can compare the effects of market volatilities on E3 Lithium 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 E3 Lithium with a short position of Frontier Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of E3 Lithium and Frontier Lithium.

Diversification Opportunities for E3 Lithium and Frontier Lithium

0.89

Correlation Coefficient

E3 Lithium  Frontier Lithium

Very poor diversification

The 3 months correlation between ETL and Frontier is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding E3 Lithium and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and E3 Lithium 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 E3 Lithium 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 E3 Lithium i.e., E3 Lithium and Frontier Lithium go up and down completely randomly.

Pair Corralation between E3 Lithium and Frontier Lithium

Assuming the 90 days horizon E3 Lithium is expected to generate 0.91 times more return on investment than Frontier Lithium. However, E3 Lithium is 1.1 times less risky than Frontier Lithium. It trades about -0.11 of its potential returns per unit of risk. Frontier Lithium is currently generating about -0.24 per unit of risk. If you would invest  121.00  in E3 Lithium on September 19, 2024 and sell it today you would lose (25.00) from holding E3 Lithium or give up 20.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

E3 Lithium  vs.  Frontier Lithium

E3 Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E3 Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with E3 Lithium and Frontier Lithium

The main advantage of trading using opposite E3 Lithium and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E3 Lithium 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 E3 Lithium 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.