Correlation Between Lithium Americas and Northern Dynasty

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

Diversification Opportunities for Lithium Americas and Northern Dynasty

-0.19

Correlation Coefficient

Lithium Americas  Northern Dynasty

Good diversification

The 3 months correlation between Lithium and Northern is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Northern Dynasty Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Dynasty Minerals 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 Northern Dynasty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Dynasty Minerals has no effect on the direction of Lithium Americas i.e., Lithium Americas and Northern Dynasty go up and down completely randomly.

Pair Corralation between Lithium Americas and Northern Dynasty

Considering the 90-day investment horizon Lithium Americas Corp is expected to under-perform the Northern Dynasty. But the stock apears to be less risky and, when comparing its historical volatility, Lithium Americas Corp is 1.97 times less risky than Northern Dynasty. The stock trades about -0.03 of its potential returns per unit of risk. The Northern Dynasty Minerals is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  57.00  in Northern Dynasty Minerals on December 29, 2024 and sell it today you would earn a total of  55.00  from holding Northern Dynasty Minerals or generate 96.49% return on investment over 90 days.

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

Lithium Americas Corp  vs.  Northern Dynasty Minerals

Lithium Americas Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Americas Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Northern Dynasty Minerals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Dynasty Minerals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Northern Dynasty disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lithium Americas and Northern Dynasty

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

The idea behind Lithium Americas Corp and Northern Dynasty Minerals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.