Correlation Between American Lithium and Liontown Resources

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

Diversification Opportunities for American Lithium and Liontown Resources

0.7

Correlation Coefficient

American Lithium  Liontown Resources

Poor diversification

The 3 months correlation between American and Liontown is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American Lithium Corp and Liontown Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontown Resources 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 Liontown Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontown Resources has no effect on the direction of American Lithium i.e., American Lithium and Liontown Resources go up and down completely randomly.

Pair Corralation between American Lithium and Liontown Resources

Assuming the 90 days trading horizon American Lithium Corp is expected to generate 0.59 times more return on investment than Liontown Resources. However, American Lithium Corp is 1.7 times less risky than Liontown Resources. It trades about 0.16 of its potential returns per unit of risk. Liontown Resources Limited is currently generating about 0.06 per unit of risk. If you would invest  32.00  in American Lithium Corp on August 31, 2024 and sell it today you would earn a total of  32.00  from holding American Lithium Corp or generate 100.0% return on investment over 90 days.

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

American Lithium Corp  vs.  Liontown Resources Limited

American Lithium Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Lithium Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Liontown Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liontown Resources Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Liontown Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Lithium and Liontown Resources

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

The idea behind American Lithium Corp and Liontown Resources Limited 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.