Correlation Between ArcWest Exploration and Stria Lithium

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

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

Diversification Opportunities for ArcWest Exploration and Stria Lithium

0.11

Correlation Coefficient

ArcWest Exploration  Stria Lithium

Average diversification

The 3 months correlation between ArcWest and Stria is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding ArcWest Exploration and Stria Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stria Lithium and ArcWest Exploration 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 ArcWest Exploration are associated (or correlated) with Stria Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stria Lithium has no effect on the direction of ArcWest Exploration i.e., ArcWest Exploration and Stria Lithium go up and down completely randomly.

Pair Corralation between ArcWest Exploration and Stria Lithium

Assuming the 90 days horizon ArcWest Exploration is expected to generate 6.09 times less return on investment than Stria Lithium. But when comparing it to its historical volatility, ArcWest Exploration is 1.29 times less risky than Stria Lithium. It trades about 0.05 of its potential returns per unit of risk. Stria Lithium is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5.50  in Stria Lithium on December 29, 2024 and sell it today you would earn a total of  10.50  from holding Stria Lithium or generate 190.91% return on investment over 90 days.

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

ArcWest Exploration  vs.  Stria Lithium

ArcWest Exploration

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ArcWest Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, ArcWest Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Stria Lithium

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Stria Lithium are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Stria Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ArcWest Exploration and Stria Lithium

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

The idea behind ArcWest Exploration and Stria Lithium 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.