Correlation Between Frontier Lithium and Standard Lithium

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

Diversification Opportunities for Frontier Lithium and Standard Lithium

-0.84

Correlation Coefficient

Frontier Lithium  Standard Lithium

Pay attention - limited upside

The 3 months correlation between Frontier and Standard is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Lithium and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Frontier Lithium i.e., Frontier Lithium and Standard Lithium go up and down completely randomly.

Pair Corralation between Frontier Lithium and Standard Lithium

Given the investment horizon of 90 days Frontier Lithium is expected to generate 0.85 times more return on investment than Standard Lithium. However, Frontier Lithium is 1.18 times less risky than Standard Lithium. It trades about 0.13 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.02 per unit of risk. If you would invest  44.00  in Frontier Lithium on December 30, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Frontier Lithium  vs.  Standard 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 9 (%) 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.

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard 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.

Pair Trading with Frontier Lithium and Standard Lithium

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

The idea behind Frontier Lithium and Standard 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.