Correlation Between Piedmont Lithium and Standard Lithium

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

Diversification Opportunities for Piedmont Lithium and Standard Lithium

0.85

Correlation Coefficient

Piedmont Lithium  Standard Lithium

Very poor diversification

The 3 months correlation between Piedmont and Standard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Standard Lithium go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Standard Lithium

Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to generate 1.17 times more return on investment than Standard Lithium. However, Piedmont Lithium is 1.17 times more volatile than Standard Lithium. It trades about 0.12 of its potential returns per unit of risk. Standard Lithium is currently generating about 0.09 per unit of risk. If you would invest  824.00  in Piedmont Lithium Ltd on August 30, 2024 and sell it today you would earn a total of  411.00  from holding Piedmont Lithium Ltd or generate 49.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Standard Lithium

Piedmont Lithium

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Piedmont Lithium Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Piedmont Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

Standard Lithium

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, Standard Lithium demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Piedmont Lithium and Standard Lithium

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

The idea behind Piedmont Lithium Ltd and Standard 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.