Correlation Between Piedmont Lithium and Largo Resources

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

Diversification Opportunities for Piedmont Lithium and Largo Resources

0.63

Correlation Coefficient

Piedmont Lithium  Largo Resources

Poor diversification

The 3 months correlation between Piedmont and Largo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Largo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largo Resources 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 Largo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largo Resources has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Largo Resources go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Largo Resources

Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to under-perform the Largo Resources. In addition to that, Piedmont Lithium is 1.22 times more volatile than Largo Resources. It trades about -0.06 of its total potential returns per unit of risk. Largo Resources is currently generating about -0.05 per unit of volatility. If you would invest  682.00  in Largo Resources on November 20, 2024 and sell it today you would lose (501.00) from holding Largo Resources or give up 73.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Largo Resources

Piedmont Lithium

Risk-Adjusted Performance

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 March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Largo Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Largo Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Largo Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Piedmont Lithium and Largo Resources

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

The idea behind Piedmont Lithium Ltd and Largo Resources 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.