Correlation Between Northern Dynasty and Lithium Americas

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

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

Diversification Opportunities for Northern Dynasty and Lithium Americas

-0.19

Correlation Coefficient

Northern Dynasty  Lithium Americas

Good diversification

The 3 months correlation between Northern and Lithium is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Northern Dynasty Minerals 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 Northern Dynasty 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 Northern Dynasty Minerals 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 Northern Dynasty i.e., Northern Dynasty and Lithium Americas go up and down completely randomly.

Pair Corralation between Northern Dynasty and Lithium Americas

Considering the 90-day investment horizon Northern Dynasty Minerals is expected to generate 1.97 times more return on investment than Lithium Americas. However, Northern Dynasty is 1.97 times more volatile than Lithium Americas Corp. It trades about 0.19 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.03 per unit of risk. If you would invest  57.00  in Northern Dynasty Minerals on December 30, 2024 and sell it today you would earn a total of  55.00  from holding Northern Dynasty Minerals or generate 96.49% return on investment over 90 days.

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

Northern Dynasty Minerals  vs.  Lithium Americas Corp

Northern Dynasty Minerals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Dynasty Minerals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Northern Dynasty disclosed solid returns over the last few months and may actually be approaching a breakup point.

Lithium Americas Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Americas Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Northern Dynasty and Lithium Americas

The main advantage of trading using opposite Northern Dynasty and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Dynasty 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 Northern Dynasty Minerals 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.