Correlation Between Royal Canadian and Lithium Americas

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

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

Diversification Opportunities for Royal Canadian and Lithium Americas

0.89

Correlation Coefficient

Royal Canadian  Lithium Americas

Very poor diversification

The 3 months correlation between Royal and Lithium is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Royal Canadian Mint 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 Royal Canadian 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 Royal Canadian Mint 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 Royal Canadian i.e., Royal Canadian and Lithium Americas go up and down completely randomly.

Pair Corralation between Royal Canadian and Lithium Americas

Assuming the 90 days trading horizon Royal Canadian Mint is expected to generate 0.23 times more return on investment than Lithium Americas. However, Royal Canadian Mint is 4.39 times less risky than Lithium Americas. It trades about 0.1 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.07 per unit of risk. If you would invest  2,280  in Royal Canadian Mint on January 17, 2024 and sell it today you would earn a total of  970.00  from holding Royal Canadian Mint or generate 42.54% return on investment over 90 days.

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

Royal Canadian Mint  vs.  Lithium Americas Corp

Royal Canadian Mint

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Canadian Mint are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Royal Canadian displayed solid returns over the last few months and may actually be approaching a breakup point.

Lithium Americas Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Lithium Americas displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royal Canadian and Lithium Americas

The main advantage of trading using opposite Royal Canadian and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Canadian 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 Royal Canadian Mint 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.