Correlation Between Edison Cobalt and Frontier Lithium

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

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

Diversification Opportunities for Edison Cobalt and Frontier Lithium

0.27

Correlation Coefficient

Edison Cobalt  Frontier Lithium

Modest diversification

The 3 months correlation between Edison and Frontier is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Edison Cobalt Corp and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium and Edison Cobalt 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 Edison Cobalt Corp 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 Edison Cobalt i.e., Edison Cobalt and Frontier Lithium go up and down completely randomly.

Pair Corralation between Edison Cobalt and Frontier Lithium

Assuming the 90 days horizon Edison Cobalt is expected to generate 4.51 times less return on investment than Frontier Lithium. But when comparing it to its historical volatility, Edison Cobalt Corp is 1.05 times less risky than Frontier Lithium. It trades about 0.03 of its potential returns per unit of risk. Frontier Lithium is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Frontier Lithium on December 30, 2024 and sell it today you would earn a total of  10.00  from holding Frontier Lithium or generate 32.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.38%
Values	Daily Returns

Edison Cobalt Corp  vs.  Frontier Lithium

Edison Cobalt Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edison Cobalt Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Edison Cobalt may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Frontier Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison Cobalt and Frontier Lithium

The main advantage of trading using opposite Edison Cobalt and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison Cobalt 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 Edison Cobalt Corp 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.