Correlation Between Big Rock and American Lithium

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

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

Diversification Opportunities for Big Rock and American Lithium

-0.39

Correlation Coefficient

Big Rock  American Lithium

Very good diversification

The 3 months correlation between Big and American is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Big Rock Brewery and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Big Rock 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 Big Rock Brewery are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Big Rock i.e., Big Rock and American Lithium go up and down completely randomly.

Pair Corralation between Big Rock and American Lithium

Assuming the 90 days horizon Big Rock Brewery is expected to generate 1.26 times more return on investment than American Lithium. However, Big Rock is 1.26 times more volatile than American Lithium Corp. It trades about 0.02 of its potential returns per unit of risk. American Lithium Corp is currently generating about -0.02 per unit of risk. If you would invest  112.00  in Big Rock Brewery on December 20, 2024 and sell it today you would lose (2.00) from holding Big Rock Brewery or give up 1.79% of portfolio value over 90 days.

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

Big Rock Brewery  vs.  American Lithium Corp

Big Rock Brewery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Rock Brewery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Big Rock may actually be approaching a critical reversion point that can send shares even higher in April 2025.

American Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, American Lithium is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Big Rock and American Lithium

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

The idea behind Big Rock Brewery and American 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.