Correlation Between Lithium Americas and Foraco International

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

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

Diversification Opportunities for Lithium Americas and Foraco International

0.11

Correlation Coefficient

Lithium Americas  Foraco International

Average diversification

The 3 months correlation between Lithium and Foraco is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Foraco International SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foraco International and Lithium Americas 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 Lithium Americas Corp are associated (or correlated) with Foraco International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foraco International has no effect on the direction of Lithium Americas i.e., Lithium Americas and Foraco International go up and down completely randomly.

Pair Corralation between Lithium Americas and Foraco International

Assuming the 90 days trading horizon Lithium Americas Corp is expected to generate 2.04 times more return on investment than Foraco International. However, Lithium Americas is 2.04 times more volatile than Foraco International SA. It trades about 0.11 of its potential returns per unit of risk. Foraco International SA is currently generating about 0.03 per unit of risk. If you would invest  331.00  in Lithium Americas Corp on September 24, 2024 and sell it today you would earn a total of  125.00  from holding Lithium Americas Corp or generate 37.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Lithium Americas Corp  vs.  Foraco International SA

Lithium Americas Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 9 (%) 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.

Foraco International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Foraco International SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Foraco International is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lithium Americas and Foraco International

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

The idea behind Lithium Americas Corp and Foraco International SA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.