Correlation Between MAG Silver and Lithium Americas

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

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

Diversification Opportunities for MAG Silver and Lithium Americas

0.62

Correlation Coefficient

MAG Silver  Lithium Americas

Poor diversification

The 3 months correlation between MAG and Lithium is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MAG Silver Corp 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 MAG Silver 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 MAG Silver Corp 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 MAG Silver i.e., MAG Silver and Lithium Americas go up and down completely randomly.

Pair Corralation between MAG Silver and Lithium Americas

Assuming the 90 days trading horizon MAG Silver Corp is expected to generate 0.51 times more return on investment than Lithium Americas. However, MAG Silver Corp is 1.95 times less risky than Lithium Americas. It trades about 0.37 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.2 per unit of risk. If you would invest  1,253  in MAG Silver Corp on January 25, 2024 and sell it today you would earn a total of  402.00  from holding MAG Silver Corp or generate 32.08% return on investment over 90 days.

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

MAG Silver Corp  vs.  Lithium Americas Corp

MAG Silver Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MAG Silver Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, MAG Silver displayed solid returns over the last few months and may actually be approaching a breakup point.

Lithium Americas Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Lithium Americas may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with MAG Silver and Lithium Americas

The main advantage of trading using opposite MAG Silver and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MAG Silver 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 MAG Silver Corp 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.