Correlation Between Vale SA and Standard Lithium

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

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

Diversification Opportunities for Vale SA and Standard Lithium

-0.72

Correlation Coefficient

Vale SA  Standard Lithium

Pay attention - limited upside

The 3 months correlation between Vale and Standard is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Vale SA 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 Vale SA 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 Vale SA i.e., Vale SA and Standard Lithium go up and down completely randomly.

Pair Corralation between Vale SA and Standard Lithium

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.37 times more return on investment than Standard Lithium. However, Vale SA ADR is 2.67 times less risky than Standard Lithium. It trades about 0.18 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.03 per unit of risk. If you would invest  852.00  in Vale SA ADR on December 28, 2024 and sell it today you would earn a total of  152.00  from holding Vale SA ADR or generate 17.84% return on investment over 90 days.

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

Vale SA ADR  vs.  Standard Lithium

Vale SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Vale SA exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Vale SA and Standard Lithium

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

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.