Correlation Between Standard Lithium and Frontier Lithium

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

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

Diversification Opportunities for Standard Lithium and Frontier Lithium

-0.27

Correlation Coefficient

Standard Lithium  Frontier Lithium

Very good diversification

The 3 months correlation between Standard and Frontier is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier 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 Frontier Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Lithium has no effect on the direction of Standard Lithium i.e., Standard Lithium and Frontier Lithium go up and down completely randomly.

Pair Corralation between Standard Lithium and Frontier Lithium

Assuming the 90 days horizon Standard Lithium is expected to under-perform the Frontier Lithium. In addition to that, Standard Lithium is 1.11 times more volatile than Frontier Lithium. It trades about -0.23 of its total potential returns per unit of risk. Frontier Lithium is currently generating about 0.48 per unit of volatility. If you would invest  46.00  in Frontier Lithium on December 1, 2024 and sell it today you would earn a total of  17.00  from holding Frontier Lithium or generate 36.96% return on investment over 90 days.

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

Standard Lithium  vs.  Frontier Lithium

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. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Frontier Lithium

Risk-Adjusted Performance

OK

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

Pair Trading with Standard Lithium and Frontier Lithium

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

The idea behind Standard Lithium and Frontier 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.