Correlation Between Albemarle Corp and Lithium Americas

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

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

Diversification Opportunities for Albemarle Corp and Lithium Americas

0.89

Correlation Coefficient

Albemarle Corp  Lithium Americas

Very poor diversification

The 3 months correlation between Albemarle and Lithium is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle Corp and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp and Albemarle Corp 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 Albemarle Corp are associated (or correlated) with Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of Albemarle Corp i.e., Albemarle Corp and Lithium Americas go up and down completely randomly.

Pair Corralation between Albemarle Corp and Lithium Americas

Considering the 90-day investment horizon Albemarle Corp is expected to under-perform the Lithium Americas. But the stock apears to be less risky and, when comparing its historical volatility, Albemarle Corp is 1.3 times less risky than Lithium Americas. The stock trades about -0.25 of its potential returns per unit of risk. The Lithium Americas Corp is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  307.00  in Lithium Americas Corp on November 28, 2024 and sell it today you would lose (31.00) from holding Lithium Americas Corp or give up 10.1% of portfolio value over 90 days.

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

Albemarle Corp  vs.  Lithium Americas Corp

Albemarle Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Albemarle Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lithium Americas Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Americas Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Albemarle Corp and Lithium Americas

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

The idea behind Albemarle Corp and Lithium Americas 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.