Correlation Between Piedmont Lithium and Ameriwest Lithium

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

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

Diversification Opportunities for Piedmont Lithium and Ameriwest Lithium

0.89

Correlation Coefficient

Piedmont Lithium  Ameriwest Lithium

Very poor diversification

The 3 months correlation between Piedmont and Ameriwest is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Ameriwest Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriwest Lithium and Piedmont Lithium 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 Piedmont Lithium Ltd are associated (or correlated) with Ameriwest Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriwest Lithium has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Ameriwest Lithium go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Ameriwest Lithium

Considering the 90-day investment horizon Piedmont Lithium is expected to generate 19.26 times less return on investment than Ameriwest Lithium. But when comparing it to its historical volatility, Piedmont Lithium Ltd is 4.1 times less risky than Ameriwest Lithium. It trades about 0.01 of its potential returns per unit of risk. Ameriwest Lithium is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6.30  in Ameriwest Lithium on October 27, 2024 and sell it today you would lose (0.30) from holding Ameriwest Lithium or give up 4.76% of portfolio value over 90 days.

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

Piedmont Lithium Ltd  vs.  Ameriwest Lithium

Piedmont Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Piedmont Lithium Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Ameriwest Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ameriwest Lithium 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 forward 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 Piedmont Lithium and Ameriwest Lithium

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

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