Correlation Between Lithium Americas and Erin Ventures

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

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

Diversification Opportunities for Lithium Americas and Erin Ventures

-0.39

Correlation Coefficient

Lithium Americas  Erin Ventures

Very good diversification

The 3 months correlation between Lithium and Erin is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Americas Corp and Erin Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erin Ventures and Lithium Americas 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 Lithium Americas Corp are associated (or correlated) with Erin Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erin Ventures has no effect on the direction of Lithium Americas i.e., Lithium Americas and Erin Ventures go up and down completely randomly.

Pair Corralation between Lithium Americas and Erin Ventures

Considering the 90-day investment horizon Lithium Americas Corp is expected to under-perform the Erin Ventures. In addition to that, Lithium Americas is 1.62 times more volatile than Erin Ventures. It trades about -0.04 of its total potential returns per unit of risk. Erin Ventures is currently generating about -0.05 per unit of volatility. If you would invest  5.70  in Erin Ventures on January 31, 2024 and sell it today you would lose (0.60) from holding Erin Ventures or give up 10.53% of portfolio value over 90 days.

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

Lithium Americas Corp  vs.  Erin Ventures

Lithium Americas Corp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Lithium Americas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Erin Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erin Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Lithium Americas and Erin Ventures

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

The idea behind Lithium Americas Corp and Erin Ventures 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.