Correlation Between NovaGold Resources and Lithium Chile

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

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

Diversification Opportunities for NovaGold Resources and Lithium Chile

0.43

Correlation Coefficient

NovaGold Resources  Lithium Chile

Very weak diversification

The 3 months correlation between NovaGold and Lithium is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NovaGold Resources and Lithium Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Chile and NovaGold Resources 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 NovaGold Resources are associated (or correlated) with Lithium Chile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Chile has no effect on the direction of NovaGold Resources i.e., NovaGold Resources and Lithium Chile go up and down completely randomly.

Pair Corralation between NovaGold Resources and Lithium Chile

Assuming the 90 days horizon NovaGold Resources is expected to generate 1.0 times more return on investment than Lithium Chile. However, NovaGold Resources is 1.0 times more volatile than Lithium Chile. It trades about -0.04 of its potential returns per unit of risk. Lithium Chile is currently generating about -0.11 per unit of risk. If you would invest  469.00  in NovaGold Resources on December 30, 2024 and sell it today you would lose (47.00) from holding NovaGold Resources or give up 10.02% of portfolio value over 90 days.

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

NovaGold Resources  vs.  Lithium Chile

NovaGold Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Lithium Chile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Chile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with NovaGold Resources and Lithium Chile

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

The idea behind NovaGold Resources and Lithium Chile 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.