Correlation Between Standard Lithium and Rock Tech

Can any of the company-specific risk be diversified away by investing in both Standard Lithium and Rock Tech 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 Rock Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Standard Lithium and Rock Tech Lithium, you can compare the effects of market volatilities on Standard Lithium and Rock Tech 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 Rock Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Lithium and Rock Tech.

Diversification Opportunities for Standard Lithium and Rock Tech

0.47

Correlation Coefficient

Standard Lithium  Rock Tech

Very weak diversification

The 3 months correlation between Standard and Rock is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Rock Tech Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rock Tech Lithium 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 Rock Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rock Tech Lithium has no effect on the direction of Standard Lithium i.e., Standard Lithium and Rock Tech go up and down completely randomly.

Pair Corralation between Standard Lithium and Rock Tech

Assuming the 90 days horizon Standard Lithium is expected to generate 0.51 times more return on investment than Rock Tech. However, Standard Lithium is 1.97 times less risky than Rock Tech. It trades about -0.18 of its potential returns per unit of risk. Rock Tech Lithium is currently generating about -0.25 per unit of risk. If you would invest  155.00  in Standard Lithium on September 18, 2024 and sell it today you would lose (17.00) from holding Standard Lithium or give up 10.97% of portfolio value over 90 days.

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

Standard Lithium  vs.  Rock Tech Lithium

Standard Lithium

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Standard Lithium reported solid returns over the last few months and may actually be approaching a breakup point.

Rock Tech Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Standard Lithium and Rock Tech

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

The idea behind Standard Lithium and Rock Tech 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.