Correlation Between Lithium Power and Pilbara Minerals

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

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

Diversification Opportunities for Lithium Power and Pilbara Minerals

0.08

Correlation Coefficient

Lithium Power  Pilbara Minerals

Significant diversification

The 3 months correlation between Lithium and Pilbara is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Lithium Power International and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals and Lithium Power 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 Lithium Power International 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 Lithium Power i.e., Lithium Power and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Lithium Power and Pilbara Minerals

If you would invest  22.00  in Lithium Power International on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Lithium Power International or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Lithium Power International  vs.  Pilbara Minerals Limited

Lithium Power Intern

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Lithium Power and Pilbara Minerals

The main advantage of trading using opposite Lithium Power and Pilbara Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lithium Power 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 Lithium Power International 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.