Correlation Between Piedmont Lithium and Vale SA

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

Diversification Opportunities for Piedmont Lithium and Vale SA

0.01

Correlation Coefficient

Piedmont Lithium  Vale SA

Significant diversification

The 3 months correlation between Piedmont and Vale is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Vale SA go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Vale SA

Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to generate 3.74 times more return on investment than Vale SA. However, Piedmont Lithium is 3.74 times more volatile than Vale SA ADR. It trades about 0.12 of its potential returns per unit of risk. Vale SA ADR is currently generating about -0.04 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	Insignificant
Accuracy	98.44%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Vale SA ADR

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.

Vale SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vale SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Piedmont Lithium and Vale SA

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

The idea behind Piedmont Lithium Ltd and Vale SA ADR 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.