Correlation Between NioCorp Developments and American Lithium

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

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

Diversification Opportunities for NioCorp Developments and American Lithium

0.28

Correlation Coefficient

NioCorp Developments  American Lithium

Modest diversification

The 3 months correlation between NioCorp and American is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NioCorp Developments Ltd and American Lithium Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Minerals and NioCorp Developments 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 NioCorp Developments Ltd 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 Minerals has no effect on the direction of NioCorp Developments i.e., NioCorp Developments and American Lithium go up and down completely randomly.

Pair Corralation between NioCorp Developments and American Lithium

Allowing for the 90-day total investment horizon NioCorp Developments is expected to generate 1.85 times less return on investment than American Lithium. But when comparing it to its historical volatility, NioCorp Developments Ltd is 2.28 times less risky than American Lithium. It trades about 0.12 of its potential returns per unit of risk. American Lithium Minerals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.85  in American Lithium Minerals on December 29, 2024 and sell it today you would earn a total of  0.71  from holding American Lithium Minerals or generate 38.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

NioCorp Developments Ltd  vs.  American Lithium Minerals

NioCorp Developments

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NioCorp Developments Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, NioCorp Developments sustained solid returns over the last few months and may actually be approaching a breakup point.

American Lithium Minerals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Lithium Minerals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting essential indicators, American Lithium displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NioCorp Developments and American Lithium

The main advantage of trading using opposite NioCorp Developments and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NioCorp Developments 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 NioCorp Developments Ltd and American Lithium Minerals 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.