Correlation Between Talon Metals and American Lithium

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

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

Diversification Opportunities for Talon Metals and American Lithium

0.11

Correlation Coefficient

Talon Metals  American Lithium

Average diversification

The 3 months correlation between Talon and American is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Talon Metals Corp and American Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Lithium Corp and Talon Metals 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 Talon Metals Corp 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 Corp has no effect on the direction of Talon Metals i.e., Talon Metals and American Lithium go up and down completely randomly.

Pair Corralation between Talon Metals and American Lithium

Assuming the 90 days trading horizon Talon Metals Corp is expected to generate 1.72 times more return on investment than American Lithium. However, Talon Metals is 1.72 times more volatile than American Lithium Corp. It trades about 0.1 of its potential returns per unit of risk. American Lithium Corp is currently generating about -0.07 per unit of risk. If you would invest  9.00  in Talon Metals Corp on December 29, 2024 and sell it today you would earn a total of  3.00  from holding Talon Metals Corp or generate 33.33% return on investment over 90 days.

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

Talon Metals Corp  vs.  American Lithium Corp

Talon Metals Corp

Risk-Adjusted Performance

OK

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

American Lithium Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Lithium Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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 Talon Metals and American Lithium

The main advantage of trading using opposite Talon Metals and American Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talon Metals 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 Talon Metals Corp and American 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.