Correlation Between American Lithium and Lithium Americas

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

Diversification Opportunities for American Lithium and Lithium Americas

0.52

Correlation Coefficient

American Lithium  Lithium Americas

Very weak diversification

The 3 months correlation between American and Lithium is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Lithium 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 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 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 American Lithium i.e., American Lithium and Lithium Americas go up and down completely randomly.

Pair Corralation between American Lithium and Lithium Americas

Given the investment horizon of 90 days American Lithium Corp is expected to generate 0.76 times more return on investment than Lithium Americas. However, American Lithium Corp is 1.31 times less risky than Lithium Americas. It trades about 0.5 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about 0.01 per unit of risk. If you would invest  36.00  in American Lithium Corp on October 27, 2024 and sell it today you would earn a total of  2.00  from holding American Lithium Corp or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	21.05%
Values	Daily Returns

American Lithium Corp  vs.  Lithium Americas Corp

American Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Lithium Americas Corp

Risk-Adjusted Performance

0 of 100

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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American Lithium and Lithium Americas

The main advantage of trading using opposite American Lithium and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Lithium 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 American Lithium 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.