Correlation Between Lithium Americas and Enbridge Pref

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

By analyzing existing cross correlation between Lithium Americas Corp and Enbridge Pref 1, you can compare the effects of market volatilities on Lithium Americas and Enbridge Pref 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 Lithium Americas with a short position of Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lithium Americas and Enbridge Pref.

Diversification Opportunities for Lithium Americas and Enbridge Pref

0.66

Correlation Coefficient

Lithium Americas  Enbridge Pref

Poor diversification

The 3 months correlation between Lithium and Enbridge is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Enbridge Pref 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 1 and Lithium Americas 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 Lithium Americas Corp are associated (or correlated) with Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 1 has no effect on the direction of Lithium Americas i.e., Lithium Americas and Enbridge Pref go up and down completely randomly.

Pair Corralation between Lithium Americas and Enbridge Pref

Assuming the 90 days trading horizon Lithium Americas Corp is expected to under-perform the Enbridge Pref. In addition to that, Lithium Americas is 6.75 times more volatile than Enbridge Pref 1. It trades about -0.06 of its total potential returns per unit of risk. Enbridge Pref 1 is currently generating about 0.07 per unit of volatility. If you would invest  1,872  in Enbridge Pref 1 on September 30, 2024 and sell it today you would earn a total of  498.00  from holding Enbridge Pref 1 or generate 26.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.14%
Values	Daily Returns

Lithium Americas Corp  vs.  Enbridge Pref 1

Lithium Americas Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Lithium Americas displayed solid returns over the last few months and may actually be approaching a breakup point.

Enbridge Pref 1

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 1 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Enbridge Pref is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lithium Americas and Enbridge Pref

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

The idea behind Lithium Americas Corp and Enbridge Pref 1 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.