Correlation Between First Majestic and Standard Lithium
Can any of the company-specific risk be diversified away by investing in both First Majestic 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 First Majestic and Standard Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Majestic Silver and Standard Lithium, you can compare the effects of market volatilities on First Majestic 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 First Majestic with a short position of Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Majestic and Standard Lithium.
Diversification Opportunities for First Majestic and Standard Lithium
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Standard is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and First Majestic 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 First Majestic Silver 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 First Majestic i.e., First Majestic and Standard Lithium go up and down completely randomly.
Pair Corralation between First Majestic and Standard Lithium
Assuming the 90 days horizon First Majestic Silver is expected to generate 0.5 times more return on investment than Standard Lithium. However, First Majestic Silver is 2.01 times less risky than Standard Lithium. It trades about -0.29 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.22 per unit of risk. If you would invest 1,028 in First Majestic Silver on September 1, 2024 and sell it today you would lose (160.00) from holding First Majestic Silver or give up 15.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Majestic Silver vs. Standard Lithium
Performance |
| Timeline |
| First Majestic Silver |
| Standard Lithium |
First Majestic and Standard Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Majestic and Standard Lithium
The main advantage of trading using opposite First Majestic and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Majestic 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.| First Majestic vs. Slate Grocery REIT | First Majestic vs. Toronto Dominion Bank | First Majestic vs. Enduro Metals Corp | First Majestic vs. Intact Financial Corp |
| Standard Lithium vs. Sigma Lithium Resources | Standard Lithium vs. American Lithium Corp | Standard Lithium vs. Rock Tech Lithium | Standard Lithium vs. Frontier Lithium |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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