Correlation Between American Lithium and Standard Lithium

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

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

Diversification Opportunities for American Lithium and Standard Lithium

0.81

Correlation Coefficient

American Lithium  Standard Lithium

Very poor diversification

The 3 months correlation between American and Standard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Lithium Corp and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and American 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 American Lithium Corp are associated (or correlated) with Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of American Lithium i.e., American Lithium and Standard Lithium go up and down completely randomly.

Pair Corralation between American Lithium and Standard Lithium

Given the investment horizon of 90 days American Lithium Corp is expected to under-perform the Standard Lithium. In addition to that, American Lithium is 1.67 times more volatile than Standard Lithium. It trades about -0.39 of its total potential returns per unit of risk. Standard Lithium is currently generating about -0.1 per unit of volatility. If you would invest  225.00  in Standard Lithium on September 21, 2024 and sell it today you would lose (23.00) from holding Standard Lithium or give up 10.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

American Lithium Corp  vs.  Standard Lithium

American Lithium Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Lithium Corp are ranked lower than 2 (%) 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.

Standard Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Standard Lithium is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Lithium and Standard Lithium

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

The idea behind American Lithium Corp and Standard Lithium 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.