Correlation Between Glencore PLC and Piedmont Lithium

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

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

Diversification Opportunities for Glencore PLC and Piedmont Lithium

0.03

Correlation Coefficient

Glencore PLC  Piedmont Lithium

Significant diversification

The 3 months correlation between Glencore and Piedmont is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC ADR and Piedmont Lithium Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piedmont Lithium and Glencore PLC 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 Glencore PLC ADR are associated (or correlated) with Piedmont Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piedmont Lithium has no effect on the direction of Glencore PLC i.e., Glencore PLC and Piedmont Lithium go up and down completely randomly.

Pair Corralation between Glencore PLC and Piedmont Lithium

Assuming the 90 days horizon Glencore PLC ADR is expected to generate 0.4 times more return on investment than Piedmont Lithium. However, Glencore PLC ADR is 2.48 times less risky than Piedmont Lithium. It trades about -0.01 of its potential returns per unit of risk. Piedmont Lithium Ltd is currently generating about -0.05 per unit of risk. If you would invest  1,087  in Glencore PLC ADR on September 26, 2024 and sell it today you would lose (202.00) from holding Glencore PLC ADR or give up 18.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Glencore PLC ADR  vs.  Piedmont Lithium Ltd

Glencore PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Piedmont Lithium

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Glencore PLC and Piedmont Lithium

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

The idea behind Glencore PLC ADR and Piedmont Lithium Ltd 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.