Correlation Between Piedmont Lithium and Electra Battery

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

Diversification Opportunities for Piedmont Lithium and Electra Battery

-0.49

Correlation Coefficient

Piedmont Lithium  Electra Battery

Very good diversification

The 3 months correlation between Piedmont and Electra is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Electra Battery Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electra Battery Materials 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 Electra Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electra Battery Materials has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Electra Battery go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Electra Battery

Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to under-perform the Electra Battery. But the stock apears to be less risky and, when comparing its historical volatility, Piedmont Lithium Ltd is 1.31 times less risky than Electra Battery. The stock trades about -0.06 of its potential returns per unit of risk. The Electra Battery Materials is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  116.00  in Electra Battery Materials on August 31, 2024 and sell it today you would lose (66.00) from holding Electra Battery Materials or give up 56.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.73%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Electra Battery Materials

Piedmont Lithium

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Piedmont Lithium Ltd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Piedmont Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

Electra Battery Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Piedmont Lithium and Electra Battery

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

The idea behind Piedmont Lithium Ltd and Electra Battery Materials 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.