Correlation Between American Lithium and GoGold Resources

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

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

Diversification Opportunities for American Lithium and GoGold Resources

0.79

Correlation Coefficient

American Lithium  GoGold Resources

Poor diversification

The 3 months correlation between American and GoGold is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Lithium Corp and GoGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GoGold Resources and American Lithium 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 American Lithium Corp are associated (or correlated) with GoGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GoGold Resources has no effect on the direction of American Lithium i.e., American Lithium and GoGold Resources go up and down completely randomly.

Pair Corralation between American Lithium and GoGold Resources

Given the investment horizon of 90 days American Lithium Corp is expected to under-perform the GoGold Resources. In addition to that, American Lithium is 1.87 times more volatile than GoGold Resources. It trades about -0.16 of its total potential returns per unit of risk. GoGold Resources is currently generating about -0.14 per unit of volatility. If you would invest  144.00  in GoGold Resources on October 7, 2024 and sell it today you would lose (27.00) from holding GoGold Resources or give up 18.75% of portfolio value over 90 days.

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

American Lithium Corp  vs.  GoGold Resources

American Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

GoGold Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GoGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with American Lithium and GoGold Resources

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

The idea behind American Lithium Corp and GoGold 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.