Correlation Between Pilbara Minerals and Arizona Lithium

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

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

Diversification Opportunities for Pilbara Minerals and Arizona Lithium

0.28

Correlation Coefficient

Pilbara Minerals  Arizona Lithium

Modest diversification

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

Pair Corralation between Pilbara Minerals and Arizona Lithium

Assuming the 90 days horizon Pilbara Minerals Limited is expected to under-perform the Arizona Lithium. But the pink sheet apears to be less risky and, when comparing its historical volatility, Pilbara Minerals Limited is 27.28 times less risky than Arizona Lithium. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Arizona Lithium Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.02  in Arizona Lithium Limited on December 30, 2024 and sell it today you would lose (0.65) from holding Arizona Lithium Limited or give up 63.73% of portfolio value over 90 days.

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

Pilbara Minerals Limited  vs.  Arizona Lithium Limited

Pilbara Minerals

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Arizona Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arizona Lithium Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arizona Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pilbara Minerals and Arizona Lithium

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

The idea behind Pilbara Minerals Limited and Arizona Lithium 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.