Correlation Between Australian Vanadium and Noram Lithium

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

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

Diversification Opportunities for Australian Vanadium and Noram Lithium

0.55

Correlation Coefficient

Australian Vanadium  Noram Lithium

Very weak diversification

The 3 months correlation between Australian and Noram is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Australian Vanadium Limited and Noram Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noram Lithium Corp and Australian Vanadium 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 Australian Vanadium Limited are associated (or correlated) with Noram Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noram Lithium Corp has no effect on the direction of Australian Vanadium i.e., Australian Vanadium and Noram Lithium go up and down completely randomly.

Pair Corralation between Australian Vanadium and Noram Lithium

Assuming the 90 days horizon Australian Vanadium Limited is expected to under-perform the Noram Lithium. In addition to that, Australian Vanadium is 1.39 times more volatile than Noram Lithium Corp. It trades about -0.04 of its total potential returns per unit of risk. Noram Lithium Corp is currently generating about -0.01 per unit of volatility. If you would invest  11.00  in Noram Lithium Corp on September 3, 2024 and sell it today you would lose (2.00) from holding Noram Lithium Corp or give up 18.18% of portfolio value over 90 days.

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

Australian Vanadium Limited  vs.  Noram Lithium Corp

Australian Vanadium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Vanadium Limited 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 basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Noram Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Noram Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Noram Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Australian Vanadium and Noram Lithium

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

The idea behind Australian Vanadium Limited and Noram 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.