Correlation Between Lithium Americas and Vale SA

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

Diversification Opportunities for Lithium Americas and Vale SA

-0.25

Correlation Coefficient

Lithium Americas  Vale SA

Very good diversification

The 3 months correlation between Lithium and Vale is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of Lithium Americas i.e., Lithium Americas and Vale SA go up and down completely randomly.

Pair Corralation between Lithium Americas and Vale SA

Considering the 90-day investment horizon Lithium Americas Corp is expected to generate 2.85 times more return on investment than Vale SA. However, Lithium Americas is 2.85 times more volatile than Vale SA ADR. It trades about 0.18 of its potential returns per unit of risk. Vale SA ADR is currently generating about 0.0 per unit of risk. If you would invest  227.00  in Lithium Americas Corp on September 2, 2024 and sell it today you would earn a total of  172.00  from holding Lithium Americas Corp or generate 75.77% 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.  Vale SA ADR

Lithium Americas Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Lithium Americas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lithium Americas and Vale SA

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

The idea behind Lithium Americas Corp and Vale SA ADR 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.