Correlation Between Electra Battery and Frontier Lithium

Can any of the company-specific risk be diversified away by investing in both Electra Battery 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 Electra Battery and Frontier 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 Frontier Lithium, you can compare the effects of market volatilities on Electra Battery 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 Electra Battery with a short position of Frontier Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electra Battery and Frontier Lithium.

Diversification Opportunities for Electra Battery and Frontier Lithium

-0.34

Correlation Coefficient

Electra Battery  Frontier Lithium

Very good diversification

The 3 months correlation between Electra and Frontier is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium 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 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 Electra Battery i.e., Electra Battery and Frontier Lithium go up and down completely randomly.

Pair Corralation between Electra Battery and Frontier Lithium

Given the investment horizon of 90 days Electra Battery Materials is expected to under-perform the Frontier Lithium. In addition to that, Electra Battery is 1.12 times more volatile than Frontier Lithium. It trades about -0.21 of its total potential returns per unit of risk. Frontier Lithium is currently generating about 0.13 per unit of volatility. If you would invest  44.00  in Frontier Lithium on December 29, 2024 and sell it today you would earn a total of  15.00  from holding Frontier Lithium or generate 34.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Electra Battery Materials  vs.  Frontier Lithium

Electra Battery Materials

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 10 (%) 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 Electra Battery and Frontier Lithium

The main advantage of trading using opposite Electra Battery and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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 Electra Battery Materials 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.