Correlation Between Standard Lithium and Vale SA

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

Diversification Opportunities for Standard Lithium and Vale SA

-0.5

Correlation Coefficient

Standard Lithium  Vale SA

Very good diversification

The 3 months correlation between Standard and Vale is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA and Standard 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 Standard Lithium 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 has no effect on the direction of Standard Lithium i.e., Standard Lithium and Vale SA go up and down completely randomly.

Pair Corralation between Standard Lithium and Vale SA

Assuming the 90 days horizon Standard Lithium is expected to under-perform the Vale SA. In addition to that, Standard Lithium is 2.61 times more volatile than Vale SA. It trades about -0.06 of its total potential returns per unit of risk. Vale SA is currently generating about 0.11 per unit of volatility. If you would invest  823.00  in Vale SA on December 21, 2024 and sell it today you would earn a total of  87.00  from holding Vale SA or generate 10.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Standard Lithium  vs.  Vale SA

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard 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 basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Vale SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Vale SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Standard Lithium and Vale SA

The main advantage of trading using opposite Standard Lithium and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard 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 Standard Lithium and Vale SA 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.