Correlation Between Pilbara Minerals and Critical Elements

Can any of the company-specific risk be diversified away by investing in both Pilbara Minerals and Critical Elements 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 Critical Elements 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 Critical Elements, you can compare the effects of market volatilities on Pilbara Minerals and Critical Elements 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 Critical Elements. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pilbara Minerals and Critical Elements.

Diversification Opportunities for Pilbara Minerals and Critical Elements

0.72

Correlation Coefficient

Pilbara Minerals  Critical Elements

Poor diversification

The 3 months correlation between Pilbara and Critical is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pilbara Minerals Limited and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements 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 Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Pilbara Minerals i.e., Pilbara Minerals and Critical Elements go up and down completely randomly.

Pair Corralation between Pilbara Minerals and Critical Elements

Assuming the 90 days horizon Pilbara Minerals Limited is expected to under-perform the Critical Elements. But the pink sheet apears to be less risky and, when comparing its historical volatility, Pilbara Minerals Limited is 1.39 times less risky than Critical Elements. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Critical Elements is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Critical Elements on October 22, 2024 and sell it today you would lose (23.00) from holding Critical Elements or give up 46.94% of portfolio value over 90 days.

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

Pilbara Minerals Limited  vs.  Critical Elements

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

Critical Elements

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Critical Elements 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 indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Pilbara Minerals and Critical Elements

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

The idea behind Pilbara Minerals Limited and Critical Elements 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.