Correlation Between Lithium Americas and Hammond Power

Can any of the company-specific risk be diversified away by investing in both Lithium Americas and Hammond Power 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 Hammond Power 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 Hammond Power Solutions, you can compare the effects of market volatilities on Lithium Americas and Hammond Power 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 Hammond Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Americas and Hammond Power.

Diversification Opportunities for Lithium Americas and Hammond Power

-0.52

Correlation Coefficient

Lithium Americas  Hammond Power

Excellent diversification

The 3 months correlation between Lithium and Hammond is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Hammond Power Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Power Solutions 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 Hammond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Power Solutions has no effect on the direction of Lithium Americas i.e., Lithium Americas and Hammond Power go up and down completely randomly.

Pair Corralation between Lithium Americas and Hammond Power

Assuming the 90 days trading horizon Lithium Americas Corp is expected to under-perform the Hammond Power. In addition to that, Lithium Americas is 1.45 times more volatile than Hammond Power Solutions. It trades about -0.02 of its total potential returns per unit of risk. Hammond Power Solutions is currently generating about 0.07 per unit of volatility. If you would invest  8,004  in Hammond Power Solutions on September 25, 2024 and sell it today you would earn a total of  4,676  from holding Hammond Power Solutions or generate 58.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Lithium Americas Corp  vs.  Hammond Power Solutions

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.

Hammond Power Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hammond Power Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Hammond Power is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lithium Americas and Hammond Power

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

The idea behind Lithium Americas Corp and Hammond Power Solutions 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.