Correlation Between Largo Resources and Standard Lithium

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

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

Diversification Opportunities for Largo Resources and Standard Lithium

0.15

Correlation Coefficient

Largo Resources  Standard Lithium

Average diversification

The 3 months correlation between Largo and Standard is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Largo Resources and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Largo Resources 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 Largo Resources 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 Largo Resources i.e., Largo Resources and Standard Lithium go up and down completely randomly.

Pair Corralation between Largo Resources and Standard Lithium

Considering the 90-day investment horizon Largo Resources is expected to generate 0.96 times more return on investment than Standard Lithium. However, Largo Resources is 1.04 times less risky than Standard Lithium. It trades about 0.03 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.01 per unit of risk. If you would invest  173.00  in Largo Resources on December 28, 2024 and sell it today you would earn a total of  5.00  from holding Largo Resources or generate 2.89% return on investment over 90 days.

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

Largo Resources  vs.  Standard Lithium

Largo Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Largo Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Largo Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Standard Lithium is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Largo Resources and Standard Lithium

The main advantage of trading using opposite Largo Resources and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Largo Resources 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 Largo Resources 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.