Correlation Between Emerita Resources and Nova Lithium

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

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

Diversification Opportunities for Emerita Resources and Nova Lithium

-0.55

Correlation Coefficient

Emerita Resources  Nova Lithium

Excellent diversification

The 3 months correlation between Emerita and Nova is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Emerita Resources Corp and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp and Emerita Resources 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 Emerita Resources Corp are associated (or correlated) with Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of Emerita Resources i.e., Emerita Resources and Nova Lithium go up and down completely randomly.

Pair Corralation between Emerita Resources and Nova Lithium

Assuming the 90 days horizon Emerita Resources Corp is expected to generate 0.69 times more return on investment than Nova Lithium. However, Emerita Resources Corp is 1.45 times less risky than Nova Lithium. It trades about 0.24 of its potential returns per unit of risk. Nova Lithium Corp is currently generating about -0.07 per unit of risk. If you would invest  47.00  in Emerita Resources Corp on November 29, 2024 and sell it today you would earn a total of  56.00  from holding Emerita Resources Corp or generate 119.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Emerita Resources Corp  vs.  Nova Lithium Corp

Emerita Resources Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerita Resources Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Emerita Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Nova Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nova Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Emerita Resources and Nova Lithium

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

The idea behind Emerita Resources Corp and Nova 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.