Correlation Between DHI and Foremost Lithium

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

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

Diversification Opportunities for DHI and Foremost Lithium

-0.16

Correlation Coefficient

DHI  Foremost Lithium

Good diversification

The 3 months correlation between DHI and Foremost is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding DHI Group and Foremost Lithium Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foremost Lithium Resource and DHI 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 DHI Group are associated (or correlated) with Foremost Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foremost Lithium Resource has no effect on the direction of DHI i.e., DHI and Foremost Lithium go up and down completely randomly.

Pair Corralation between DHI and Foremost Lithium

Considering the 90-day investment horizon DHI is expected to generate 5.18 times less return on investment than Foremost Lithium. But when comparing it to its historical volatility, DHI Group is 4.1 times less risky than Foremost Lithium. It trades about 0.02 of its potential returns per unit of risk. Foremost Lithium Resource is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  141.00  in Foremost Lithium Resource on October 9, 2024 and sell it today you would lose (7.00) from holding Foremost Lithium Resource or give up 4.96% of portfolio value over 90 days.

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

DHI Group  vs.  Foremost Lithium Resource

DHI Group

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DHI Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, DHI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Foremost Lithium Resource

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foremost Lithium Resource has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with DHI and Foremost Lithium

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

The idea behind DHI Group and Foremost Lithium Resource 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.