Correlation Between Dupont De and Frontier Lithium

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

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

Diversification Opportunities for Dupont De and Frontier Lithium

0.66

Correlation Coefficient

Dupont De  Frontier Lithium

Poor diversification

The 3 months correlation between Dupont and Frontier is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and Dupont De 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 Dupont De Nemours are associated (or correlated) with Frontier Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Lithium has no effect on the direction of Dupont De i.e., Dupont De and Frontier Lithium go up and down completely randomly.

Pair Corralation between Dupont De and Frontier Lithium

Allowing for the 90-day total investment horizon Dupont De Nemours is expected to under-perform the Frontier Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Dupont De Nemours is 2.88 times less risky than Frontier Lithium. The stock trades about -0.02 of its potential returns per unit of risk. The Frontier Lithium is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  53.00  in Frontier Lithium on December 2, 2024 and sell it today you would earn a total of  10.00  from holding Frontier Lithium or generate 18.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Dupont De Nemours  vs.  Frontier Lithium

Dupont De Nemours

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dupont De Nemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dupont De is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Frontier Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dupont De and Frontier Lithium

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

The idea behind Dupont De Nemours and Frontier Lithium 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.