Correlation Between Hemp and US Lithium

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

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

Diversification Opportunities for Hemp and US Lithium

0.29

Correlation Coefficient

Hemp  US Lithium

Modest diversification

The 3 months correlation between Hemp and LITH is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Hemp Inc and US Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Lithium Corp and Hemp 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 Hemp Inc are associated (or correlated) with US Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Lithium Corp has no effect on the direction of Hemp i.e., Hemp and US Lithium go up and down completely randomly.

Pair Corralation between Hemp and US Lithium

Given the investment horizon of 90 days Hemp Inc is expected to generate 13.64 times more return on investment than US Lithium. However, Hemp is 13.64 times more volatile than US Lithium Corp. It trades about 0.12 of its potential returns per unit of risk. US Lithium Corp is currently generating about -0.13 per unit of risk. If you would invest  0.00  in Hemp Inc on December 1, 2024 and sell it today you would earn a total of  0.00  from holding Hemp Inc or generate 0.0% return on investment over 90 days.

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

Hemp Inc  vs.  US Lithium Corp

Hemp Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hemp Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Hemp reported solid returns over the last few months and may actually be approaching a breakup point.

US Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Hemp and US Lithium

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

The idea behind Hemp Inc and US 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .