Correlation Between North American and Lithium Americas

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

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

Diversification Opportunities for North American and Lithium Americas

-0.75

Correlation Coefficient

North American  Lithium Americas

Pay attention - limited upside

The 3 months correlation between North and Lithium is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Lithium Americas go up and down completely randomly.

Pair Corralation between North American and Lithium Americas

Assuming the 90 days trading horizon North American Construction is expected to generate 0.63 times more return on investment than Lithium Americas. However, North American Construction is 1.58 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 -0.06 per unit of risk. If you would invest  2,994  in North American Construction on October 15, 2024 and sell it today you would lose (71.00) from holding North American Construction or give up 2.37% of portfolio value over 90 days.

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

North American Construction  vs.  Lithium Americas Corp

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Lithium Americas Corp

Risk-Adjusted Performance

0 of 100

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 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.

Pair Trading with North American and Lithium Americas

The main advantage of trading using opposite North American and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.