Correlation Between Lithium Americas and Entree Resources

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

Diversification Opportunities for Lithium Americas and Entree Resources

-0.45

Correlation Coefficient

Lithium Americas  Entree Resources

Very good diversification

The 3 months correlation between Lithium and Entree is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Entree Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entree Resources 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 Entree Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entree Resources has no effect on the direction of Lithium Americas i.e., Lithium Americas and Entree Resources go up and down completely randomly.

Pair Corralation between Lithium Americas and Entree Resources

Assuming the 90 days trading horizon Lithium Americas Corp is expected to under-perform the Entree Resources. But the stock apears to be less risky and, when comparing its historical volatility, Lithium Americas Corp is 1.26 times less risky than Entree Resources. The stock trades about -0.31 of its potential returns per unit of risk. The Entree Resources is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Entree Resources on September 29, 2024 and sell it today you would earn a total of  48.00  from holding Entree Resources or generate 24.49% return on investment over 90 days.

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

Lithium Americas Corp  vs.  Entree Resources

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.

Entree Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Entree Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Entree Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithium Americas and Entree Resources

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

The idea behind Lithium Americas Corp and Entree Resources 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.