Correlation Between Standard Lithium and Pilbara Minerals

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

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

Diversification Opportunities for Standard Lithium and Pilbara Minerals

0.81

Correlation Coefficient

Standard Lithium  Pilbara Minerals

Very poor diversification

The 3 months correlation between Standard and Pilbara is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals 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 Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Standard Lithium i.e., Standard Lithium and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Standard Lithium and Pilbara Minerals

Considering the 90-day investment horizon Standard Lithium is expected to under-perform the Pilbara Minerals. In addition to that, Standard Lithium is 1.31 times more volatile than Pilbara Minerals Limited. It trades about -0.04 of its total potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.03 per unit of volatility. If you would invest  133.00  in Pilbara Minerals Limited on December 23, 2024 and sell it today you would lose (11.00) from holding Pilbara Minerals Limited or give up 8.27% of portfolio value over 90 days.

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

Standard Lithium  vs.  Pilbara Minerals Limited

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 latest unsteady performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pilbara Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Pilbara Minerals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Standard Lithium and Pilbara Minerals

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

The idea behind Standard Lithium and Pilbara Minerals Limited 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.