Correlation Between Brookfield and Lithium Americas

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

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

Diversification Opportunities for Brookfield and Lithium Americas

-0.5

Correlation Coefficient

Brookfield  Lithium Americas

Very good diversification

The 3 months correlation between Brookfield and Lithium is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield 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 Brookfield 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 Brookfield 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 Brookfield i.e., Brookfield and Lithium Americas go up and down completely randomly.

Pair Corralation between Brookfield and Lithium Americas

Assuming the 90 days horizon Brookfield is expected to generate 1.55 times less return on investment than Lithium Americas. But when comparing it to its historical volatility, Brookfield is 1.78 times less risky than Lithium Americas. It trades about 0.14 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  384.00  in Lithium Americas Corp on October 24, 2024 and sell it today you would earn a total of  26.00  from holding Lithium Americas Corp or generate 6.77% return on investment over 90 days.

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

Brookfield  vs.  Lithium Americas Corp

Brookfield

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brookfield displayed solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Brookfield and Lithium Americas

The main advantage of trading using opposite Brookfield and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield 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 Brookfield 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.