Correlation Between E3 Lithium and Canada Nickel

Can any of the company-specific risk be diversified away by investing in both E3 Lithium and Canada Nickel 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 E3 Lithium and Canada Nickel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E3 Lithium and Canada Nickel, you can compare the effects of market volatilities on E3 Lithium and Canada Nickel 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 E3 Lithium with a short position of Canada Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of E3 Lithium and Canada Nickel.

Diversification Opportunities for E3 Lithium and Canada Nickel

-0.47

Correlation Coefficient

E3 Lithium  Canada Nickel

Very good diversification

The 3 months correlation between ETL and Canada is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding E3 Lithium and Canada Nickel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canada Nickel and E3 Lithium 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 E3 Lithium are associated (or correlated) with Canada Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canada Nickel has no effect on the direction of E3 Lithium i.e., E3 Lithium and Canada Nickel go up and down completely randomly.

Pair Corralation between E3 Lithium and Canada Nickel

Assuming the 90 days horizon E3 Lithium is expected to under-perform the Canada Nickel. But the stock apears to be less risky and, when comparing its historical volatility, E3 Lithium is 1.21 times less risky than Canada Nickel. The stock trades about -0.06 of its potential returns per unit of risk. The Canada Nickel is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Canada Nickel on December 28, 2024 and sell it today you would earn a total of  9.00  from holding Canada Nickel or generate 9.78% return on investment over 90 days.

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

E3 Lithium  vs.  Canada Nickel

E3 Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days E3 Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Canada Nickel

Risk-Adjusted Performance

Insignificant

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

Pair Trading with E3 Lithium and Canada Nickel

The main advantage of trading using opposite E3 Lithium and Canada Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E3 Lithium position performs unexpectedly, Canada Nickel 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 Canada Nickel will offset losses from the drop in Canada Nickel's long position.

The idea behind E3 Lithium and Canada Nickel 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.