Correlation Between Frontier Lithium and Lithium Americas

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

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

Diversification Opportunities for Frontier Lithium and Lithium Americas

-0.53

Correlation Coefficient

Frontier Lithium  Lithium Americas

Excellent diversification

The 3 months correlation between Frontier and Lithium is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Lithium 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 Frontier 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 Frontier Lithium 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 Frontier Lithium i.e., Frontier Lithium and Lithium Americas go up and down completely randomly.

Pair Corralation between Frontier Lithium and Lithium Americas

Given the investment horizon of 90 days Frontier Lithium is expected to under-perform the Lithium Americas. But the stock apears to be less risky and, when comparing its historical volatility, Frontier Lithium is 1.86 times less risky than Lithium Americas. The stock trades about -0.22 of its potential returns per unit of risk. The Lithium Americas Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Lithium Americas Corp on September 20, 2024 and sell it today you would earn a total of  112.00  from holding Lithium Americas Corp or generate 36.01% return on investment over 90 days.

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

Frontier Lithium  vs.  Lithium Americas Corp

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 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.

Lithium Americas Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Lithium Americas displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frontier Lithium and Lithium Americas

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

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.