Correlation Between Federal National and Lithium Energi

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

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

Diversification Opportunities for Federal National and Lithium Energi

-0.79

Correlation Coefficient

Federal National  Lithium Energi

Pay attention - limited upside

The 3 months correlation between Federal and Lithium is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Federal National Mortgage and Lithium Energi Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Energi Explo and Federal National 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 Federal National Mortgage are associated (or correlated) with Lithium Energi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Energi Explo has no effect on the direction of Federal National i.e., Federal National and Lithium Energi go up and down completely randomly.

Pair Corralation between Federal National and Lithium Energi

Assuming the 90 days horizon Federal National Mortgage is expected to generate 1.18 times more return on investment than Lithium Energi. However, Federal National is 1.18 times more volatile than Lithium Energi Exploration. It trades about 0.09 of its potential returns per unit of risk. Lithium Energi Exploration is currently generating about -0.18 per unit of risk. If you would invest  2,962,500  in Federal National Mortgage on September 14, 2024 and sell it today you would earn a total of  257,500  from holding Federal National Mortgage or generate 8.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Federal National Mortgage  vs.  Lithium Energi Exploration

Federal National Mortgage

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal National Mortgage are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Federal National displayed solid returns over the last few months and may actually be approaching a breakup point.

Lithium Energi Explo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lithium Energi Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic 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.

Pair Trading with Federal National and Lithium Energi

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

The idea behind Federal National Mortgage and Lithium Energi Exploration 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.