Correlation Between South32 ADR and Standard Lithium

Can any of the company-specific risk be diversified away by investing in both South32 ADR and Standard 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 South32 ADR and Standard Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South32 ADR and Standard Lithium, you can compare the effects of market volatilities on South32 ADR and Standard 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 South32 ADR with a short position of Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 ADR and Standard Lithium.

Diversification Opportunities for South32 ADR and Standard Lithium

-0.38

Correlation Coefficient

South32 ADR  Standard Lithium

Very good diversification

The 3 months correlation between South32 and Standard is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding South32 ADR and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and South32 ADR 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 South32 ADR are associated (or correlated) with Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of South32 ADR i.e., South32 ADR and Standard Lithium go up and down completely randomly.

Pair Corralation between South32 ADR and Standard Lithium

Assuming the 90 days horizon South32 ADR is expected to generate 0.52 times more return on investment than Standard Lithium. However, South32 ADR is 1.92 times less risky than Standard Lithium. It trades about 0.01 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.01 per unit of risk. If you would invest  1,049  in South32 ADR on December 29, 2024 and sell it today you would lose (5.00) from holding South32 ADR or give up 0.48% of portfolio value over 90 days.

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

South32 ADR  vs.  Standard Lithium

South32 ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days South32 ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, South32 ADR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong essential indicators, Standard Lithium is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with South32 ADR and Standard Lithium

The main advantage of trading using opposite South32 ADR and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 ADR position performs unexpectedly, Standard 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 Standard Lithium will offset losses from the drop in Standard Lithium's long position.

The idea behind South32 ADR and Standard 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.