Correlation Between Connect Biopharma and US Lithium

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

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

Diversification Opportunities for Connect Biopharma and US Lithium

0.08

Correlation Coefficient

Connect Biopharma  US Lithium

Significant diversification

The 3 months correlation between Connect and LITH is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and US Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Lithium Corp and Connect Biopharma 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 Connect Biopharma Holdings are associated (or correlated) with US Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Lithium Corp has no effect on the direction of Connect Biopharma i.e., Connect Biopharma and US Lithium go up and down completely randomly.

Pair Corralation between Connect Biopharma and US Lithium

Given the investment horizon of 90 days Connect Biopharma Holdings is expected to generate 1.86 times more return on investment than US Lithium. However, Connect Biopharma is 1.86 times more volatile than US Lithium Corp. It trades about 0.04 of its potential returns per unit of risk. US Lithium Corp is currently generating about -0.06 per unit of risk. If you would invest  80.00  in Connect Biopharma Holdings on November 20, 2024 and sell it today you would earn a total of  13.50  from holding Connect Biopharma Holdings or generate 16.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.73%
Values	Daily Returns

Connect Biopharma Holdings  vs.  US Lithium Corp

Connect Biopharma

Risk-Adjusted Performance

Very Weak

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

US Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Connect Biopharma and US Lithium

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

The idea behind Connect Biopharma Holdings and US 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.