Correlation Between Electra Battery and American Lithium

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

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

Diversification Opportunities for Electra Battery and American Lithium

-0.18

Correlation Coefficient

Electra Battery  American Lithium

Good diversification

The 3 months correlation between Electra and American is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Electra Battery 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 Electra Battery Materials are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Electra Battery i.e., Electra Battery and American Lithium go up and down completely randomly.

Pair Corralation between Electra Battery and American Lithium

Assuming the 90 days trading horizon Electra Battery Materials is expected to under-perform the American Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Electra Battery Materials is 2.74 times less risky than American Lithium. The stock trades about -0.11 of its potential returns per unit of risk. The American Lithium Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  53.00  in American Lithium Corp on September 16, 2024 and sell it today you would earn a total of  5.00  from holding American Lithium Corp or generate 9.43% return on investment over 90 days.

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

Electra Battery Materials  vs.  American Lithium Corp

Electra Battery Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

American Lithium Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Lithium Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, American Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electra Battery and American Lithium

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

The idea behind Electra Battery Materials and American 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.