Correlation Between Vale SA and Standard Lithium

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

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

Diversification Opportunities for Vale SA and Standard Lithium

0.28

Correlation Coefficient

Vale SA  Standard Lithium

Modest diversification

The 3 months correlation between Vale and Standard is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Vale SA 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 Vale SA are associated (or correlated) with Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Vale SA i.e., Vale SA and Standard Lithium go up and down completely randomly.

Pair Corralation between Vale SA and Standard Lithium

Assuming the 90 days trading horizon Vale SA is expected to under-perform the Standard Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Vale SA is 2.36 times less risky than Standard Lithium. The stock trades about -0.03 of its potential returns per unit of risk. The Standard Lithium is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  268.00  in Standard Lithium on September 20, 2024 and sell it today you would lose (133.00) from holding Standard Lithium or give up 49.63% of portfolio value over 90 days.

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

Vale SA  vs.  Standard Lithium

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Standard Lithium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Standard Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vale SA and Standard Lithium

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

The idea behind Vale SA and Standard Lithium 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.