Correlation Between Rock Tech and American Lithium

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

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

Diversification Opportunities for Rock Tech and American Lithium

0.5

Correlation Coefficient

Rock Tech  American Lithium

Very weak diversification

The 3 months correlation between Rock and American is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Rock Tech Lithium 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 Rock Tech 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 Rock Tech Lithium 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 Rock Tech i.e., Rock Tech and American Lithium go up and down completely randomly.

Pair Corralation between Rock Tech and American Lithium

Assuming the 90 days horizon Rock Tech Lithium is expected to under-perform the American Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Rock Tech Lithium is 2.61 times less risky than American Lithium. The stock trades about -0.14 of its potential returns per unit of risk. The American Lithium Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  50.00  in American Lithium Corp on September 20, 2024 and sell it today you would earn a total of  3.00  from holding American Lithium Corp or generate 6.0% return on investment over 90 days.

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

Rock Tech Lithium  vs.  American Lithium Corp

Rock Tech Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rock Tech Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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 Rock Tech and American Lithium

The main advantage of trading using opposite Rock Tech and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rock Tech 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 Rock Tech Lithium 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.