Correlation Between Nova Lithium and American Rare

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

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

Diversification Opportunities for Nova Lithium and American Rare

-0.18

Correlation Coefficient

Nova Lithium  American Rare

Good diversification

The 3 months correlation between Nova and American is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Nova Lithium Corp and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths and Nova 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 Nova Lithium Corp are associated (or correlated) with American Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of Nova Lithium i.e., Nova Lithium and American Rare go up and down completely randomly.

Pair Corralation between Nova Lithium and American Rare

Assuming the 90 days horizon Nova Lithium Corp is expected to under-perform the American Rare. In addition to that, Nova Lithium is 1.68 times more volatile than American Rare Earths. It trades about -0.12 of its total potential returns per unit of risk. American Rare Earths is currently generating about 0.09 per unit of volatility. If you would invest  18.00  in American Rare Earths on September 12, 2024 and sell it today you would earn a total of  1.00  from holding American Rare Earths or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Nova Lithium Corp  vs.  American Rare Earths

Nova Lithium Corp

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Lithium Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Nova Lithium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

American Rare Earths

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Rare Earths are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nova Lithium and American Rare

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

The idea behind Nova Lithium Corp and American Rare Earths 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.