Correlation Between Lynas Rare and Lithium Americas

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

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

Diversification Opportunities for Lynas Rare and Lithium Americas

0.2

Correlation Coefficient

Lynas Rare  Lithium Americas

Modest diversification

The 3 months correlation between Lynas and Lithium is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Lynas Rare Earths 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 Lynas Rare 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 Lynas Rare Earths 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 Lynas Rare i.e., Lynas Rare and Lithium Americas go up and down completely randomly.

Pair Corralation between Lynas Rare and Lithium Americas

Assuming the 90 days horizon Lynas Rare Earths is expected to generate 0.42 times more return on investment than Lithium Americas. However, Lynas Rare Earths is 2.4 times less risky than Lithium Americas. It trades about 0.04 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.05 per unit of risk. If you would invest  386.00  in Lynas Rare Earths on October 12, 2024 and sell it today you would earn a total of  43.00  from holding Lynas Rare Earths or generate 11.14% return on investment over 90 days.

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

Lynas Rare Earths  vs.  Lithium Americas Corp

Lynas Rare Earths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lynas Rare Earths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lithium Americas Corp

Risk-Adjusted Performance

5 of 100

Insignificant

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 rather conflicting basic indicators, Lithium Americas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lynas Rare and Lithium Americas

The main advantage of trading using opposite Lynas Rare and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lynas Rare 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 Lynas Rare Earths 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.