Correlation Between Summit Therapeutics and Lithium Americas

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

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

Diversification Opportunities for Summit Therapeutics and Lithium Americas

0.61

Correlation Coefficient

Summit Therapeutics  Lithium Americas

Poor diversification

The 3 months correlation between Summit and Lithium is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Summit Therapeutics PLC 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 Summit Therapeutics 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 Summit Therapeutics PLC 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 Summit Therapeutics i.e., Summit Therapeutics and Lithium Americas go up and down completely randomly.

Pair Corralation between Summit Therapeutics and Lithium Americas

Given the investment horizon of 90 days Summit Therapeutics PLC is expected to generate 3.59 times more return on investment than Lithium Americas. However, Summit Therapeutics is 3.59 times more volatile than Lithium Americas Corp. It trades about 0.06 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  439.00  in Summit Therapeutics PLC on October 11, 2024 and sell it today you would earn a total of  1,443  from holding Summit Therapeutics PLC or generate 328.7% return on investment over 90 days.

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

Summit Therapeutics PLC  vs.  Lithium Americas Corp

Summit Therapeutics PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Summit Therapeutics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Summit Therapeutics is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Summit Therapeutics and Lithium Americas

The main advantage of trading using opposite Summit Therapeutics and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Therapeutics 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 Summit Therapeutics PLC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..