Correlation Between American Rare and POWR Lithium

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

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

Diversification Opportunities for American Rare and POWR Lithium

-0.35

Correlation Coefficient

American Rare  POWR Lithium

Very good diversification

The 3 months correlation between American and POWR is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding American Rare Earths and POWR Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POWR Lithium Corp and American Rare 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 Rare Earths are associated (or correlated) with POWR Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POWR Lithium Corp has no effect on the direction of American Rare i.e., American Rare and POWR Lithium go up and down completely randomly.

Pair Corralation between American Rare and POWR Lithium

Assuming the 90 days horizon American Rare is expected to generate 139.03 times less return on investment than POWR Lithium. But when comparing it to its historical volatility, American Rare Earths is 16.44 times less risky than POWR Lithium. It trades about 0.02 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.65  in POWR Lithium Corp on September 12, 2024 and sell it today you would earn a total of  3.95  from holding POWR Lithium Corp or generate 607.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

American Rare Earths  vs.  POWR Lithium Corp

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.

POWR Lithium Corp

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with American Rare and POWR Lithium

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

The idea behind American Rare Earths and POWR 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.