Correlation Between Lithium Americas and American Lithium

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

Diversification Opportunities for Lithium Americas and American Lithium

0.55

Correlation Coefficient

Lithium Americas  American Lithium

Very weak diversification

The 3 months correlation between Lithium and American is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp 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 American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Lithium Americas i.e., Lithium Americas and American Lithium go up and down completely randomly.

Pair Corralation between Lithium Americas and American Lithium

Assuming the 90 days trading horizon Lithium Americas Corp is expected to generate 0.65 times more return on investment than American Lithium. However, Lithium Americas Corp is 1.53 times less risky than American Lithium. It trades about 0.11 of its potential returns per unit of risk. American Lithium Corp is currently generating about 0.05 per unit of risk. 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Lithium Americas Corp  vs.  American Lithium Corp

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.

American Lithium Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Lithium Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, American Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithium Americas and American Lithium

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

The idea behind Lithium Americas Corp and American Lithium 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.

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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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.