Correlation Between Arizona Lithium and Nova Lithium

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

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

Diversification Opportunities for Arizona Lithium and Nova Lithium

0.22

Correlation Coefficient

Arizona Lithium  Nova Lithium

Modest diversification

The 3 months correlation between Arizona and Nova is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Arizona Lithium Limited and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp and Arizona 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 Arizona Lithium Limited are associated (or correlated) with Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of Arizona Lithium i.e., Arizona Lithium and Nova Lithium go up and down completely randomly.

Pair Corralation between Arizona Lithium and Nova Lithium

Assuming the 90 days horizon Arizona Lithium Limited is expected to generate 6.14 times more return on investment than Nova Lithium. However, Arizona Lithium is 6.14 times more volatile than Nova Lithium Corp. It trades about 0.15 of its potential returns per unit of risk. Nova Lithium Corp is currently generating about 0.2 per unit of risk. If you would invest  1.00  in Arizona Lithium Limited on October 23, 2024 and sell it today you would earn a total of  0.06  from holding Arizona Lithium Limited or generate 6.0% return on investment over 90 days.

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

Arizona Lithium Limited  vs.  Nova Lithium Corp

Arizona Lithium

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Nova Lithium Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Lithium Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Nova Lithium may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Arizona Lithium and Nova Lithium

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

The idea behind Arizona Lithium Limited and Nova 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.