Correlation Between Frontier Lithium and Azimut Exploration

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

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

Diversification Opportunities for Frontier Lithium and Azimut Exploration

-0.76

Correlation Coefficient

Frontier Lithium  Azimut Exploration

Pay attention - limited upside

The 3 months correlation between Frontier and Azimut is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Lithium and Azimut Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azimut Exploration and Frontier 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 Frontier Lithium are associated (or correlated) with Azimut Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azimut Exploration has no effect on the direction of Frontier Lithium i.e., Frontier Lithium and Azimut Exploration go up and down completely randomly.

Pair Corralation between Frontier Lithium and Azimut Exploration

Assuming the 90 days horizon Frontier Lithium is expected to generate 1.37 times more return on investment than Azimut Exploration. However, Frontier Lithium is 1.37 times more volatile than Azimut Exploration. It trades about 0.12 of its potential returns per unit of risk. Azimut Exploration is currently generating about -0.02 per unit of risk. If you would invest  31.00  in Frontier Lithium on December 30, 2024 and sell it today you would earn a total of  10.00  from holding Frontier Lithium or generate 32.26% return on investment over 90 days.

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

Frontier Lithium  vs.  Azimut Exploration

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Frontier Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Azimut Exploration

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azimut Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Azimut Exploration is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Frontier Lithium and Azimut Exploration

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

The idea behind Frontier Lithium and Azimut Exploration 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.