Correlation Between Metals Creek and American Lithium

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

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

Diversification Opportunities for Metals Creek and American Lithium

-0.72

Correlation Coefficient

Metals Creek  American Lithium

Pay attention - limited upside

The 3 months correlation between Metals and American is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Metals Creek Resources and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Metals Creek 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 Metals Creek Resources are associated (or correlated) with American Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Lithium Corp has no effect on the direction of Metals Creek i.e., Metals Creek and American Lithium go up and down completely randomly.

Pair Corralation between Metals Creek and American Lithium

Assuming the 90 days horizon Metals Creek Resources is expected to generate 1.34 times more return on investment than American Lithium. However, Metals Creek is 1.34 times more volatile than American Lithium Corp. It trades about 0.09 of its potential returns per unit of risk. American Lithium Corp is currently generating about 0.05 per unit of risk. If you would invest  4.00  in Metals Creek Resources on September 3, 2024 and sell it today you would lose (1.00) from holding Metals Creek Resources or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	23.43%
Values	Daily Returns

Metals Creek Resources  vs.  American Lithium Corp

Metals Creek Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metals Creek Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Metals Creek reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable essential indicators, American Lithium is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Metals Creek and American Lithium

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

The idea behind Metals Creek Resources and American Lithium 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.