Correlation Between Lundin Gold and Lithium Americas

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

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

Diversification Opportunities for Lundin Gold and Lithium Americas

0.3

Correlation Coefficient

Lundin Gold  Lithium Americas

Weak diversification

The 3 months correlation between Lundin and Lithium is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Gold and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp and Lundin Gold 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 Lundin Gold are associated (or correlated) with Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of Lundin Gold i.e., Lundin Gold and Lithium Americas go up and down completely randomly.

Pair Corralation between Lundin Gold and Lithium Americas

Assuming the 90 days trading horizon Lundin Gold is expected to under-perform the Lithium Americas. But the stock apears to be less risky and, when comparing its historical volatility, Lundin Gold is 1.61 times less risky than Lithium Americas. The stock trades about -0.21 of its potential returns per unit of risk. The Lithium Americas Corp is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  496.00  in Lithium Americas Corp on October 6, 2024 and sell it today you would lose (37.00) from holding Lithium Americas Corp or give up 7.46% of portfolio value over 90 days.

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

Lundin Gold  vs.  Lithium Americas Corp

Lundin Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lundin Gold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Lundin Gold is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Lithium Americas Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 5 (%) 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.

Pair Trading with Lundin Gold and Lithium Americas

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

The idea behind Lundin Gold and Lithium Americas Corp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.