Correlation Between Critical Elements and Pilbara Minerals

Can any of the company-specific risk be diversified away by investing in both Critical Elements and Pilbara Minerals 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 Critical Elements and Pilbara Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Critical Elements and Pilbara Minerals Limited, you can compare the effects of market volatilities on Critical Elements and Pilbara Minerals 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 Critical Elements with a short position of Pilbara Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Critical Elements and Pilbara Minerals.

Diversification Opportunities for Critical Elements and Pilbara Minerals

0.27

Correlation Coefficient

Critical Elements  Pilbara Minerals

Modest diversification

The 3 months correlation between Critical and Pilbara is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Critical Elements and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals and Critical Elements 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 Critical Elements are associated (or correlated) with Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Critical Elements i.e., Critical Elements and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Critical Elements and Pilbara Minerals

Assuming the 90 days horizon Critical Elements is expected to generate 1.11 times more return on investment than Pilbara Minerals. However, Critical Elements is 1.11 times more volatile than Pilbara Minerals Limited. It trades about 0.04 of its potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.01 per unit of risk. If you would invest  28.00  in Critical Elements on September 4, 2024 and sell it today you would earn a total of  1.00  from holding Critical Elements or generate 3.57% return on investment over 90 days.

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

Critical Elements  vs.  Pilbara Minerals Limited

Critical Elements

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Critical Elements may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pilbara Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Pilbara Minerals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Critical Elements and Pilbara Minerals

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

The idea behind Critical Elements and Pilbara Minerals Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.