Correlation Between First American and Lithium Power

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

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

Diversification Opportunities for First American and Lithium Power

0.0

Correlation Coefficient

First American  Lithium Power

Pay attention - limited upside

The 3 months correlation between First and Lithium is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding First American Silver and Lithium Power International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Power Intern and First American 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 First American Silver are associated (or correlated) with Lithium Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Power Intern has no effect on the direction of First American i.e., First American and Lithium Power go up and down completely randomly.

Pair Corralation between First American and Lithium Power

Given the investment horizon of 90 days First American Silver is expected to generate 7.59 times more return on investment than Lithium Power. However, First American is 7.59 times more volatile than Lithium Power International. It trades about 0.04 of its potential returns per unit of risk. Lithium Power International is currently generating about -0.02 per unit of risk. If you would invest  0.05  in First American Silver on October 11, 2024 and sell it today you would lose (0.04) from holding First American Silver or give up 80.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	25.75%
Values	Daily Returns

First American Silver  vs.  Lithium Power International

First American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lithium Power Intern

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First American and Lithium Power

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

The idea behind First American Silver and Lithium Power International 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.