Correlation Between Frontier Lithium and E3 Lithium

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

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

Diversification Opportunities for Frontier Lithium and E3 Lithium

-0.52

Correlation Coefficient

Frontier Lithium  E3 Lithium

Excellent diversification

The 3 months correlation between Frontier and ETL is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Lithium and E3 Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E3 Lithium and Frontier 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 Frontier Lithium are associated (or correlated) with E3 Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E3 Lithium has no effect on the direction of Frontier Lithium i.e., Frontier Lithium and E3 Lithium go up and down completely randomly.

Pair Corralation between Frontier Lithium and E3 Lithium

Given the investment horizon of 90 days Frontier Lithium is expected to generate 1.46 times more return on investment than E3 Lithium. However, Frontier Lithium is 1.46 times more volatile than E3 Lithium. It trades about 0.09 of its potential returns per unit of risk. E3 Lithium is currently generating about -0.19 per unit of risk. If you would invest  53.00  in Frontier Lithium on December 1, 2024 and sell it today you would earn a total of  10.00  from holding Frontier Lithium or generate 18.87% return on investment over 90 days.

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

Frontier Lithium  vs.  E3 Lithium

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 7 (%) 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.

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Frontier Lithium and E3 Lithium

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

The idea behind Frontier Lithium and E3 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.