Correlation Between Nova Lithium and POWR Lithium

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

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

Diversification Opportunities for Nova Lithium and POWR Lithium

-0.05

Correlation Coefficient

Nova Lithium  POWR Lithium

Good diversification

The 3 months correlation between Nova and POWR is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Nova Lithium Corp and POWR Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POWR Lithium Corp and Nova Lithium 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 Nova Lithium Corp are associated (or correlated) with POWR Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POWR Lithium Corp has no effect on the direction of Nova Lithium i.e., Nova Lithium and POWR Lithium go up and down completely randomly.

Pair Corralation between Nova Lithium and POWR Lithium

Assuming the 90 days horizon Nova Lithium is expected to generate 776.88 times less return on investment than POWR Lithium. But when comparing it to its historical volatility, Nova Lithium Corp is 8.91 times less risky than POWR Lithium. It trades about 0.0 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4.74  in POWR Lithium Corp on September 4, 2024 and sell it today you would earn a total of  1.16  from holding POWR Lithium Corp or generate 24.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Nova Lithium Corp  vs.  POWR Lithium Corp

Nova Lithium Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Nova Lithium is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

POWR Lithium Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in POWR Lithium Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, POWR Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova Lithium and POWR Lithium

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

The idea behind Nova Lithium Corp and POWR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.