Correlation Between Piedmont Lithium and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Piedmont Lithium and Rio Tinto 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 Piedmont Lithium and Rio Tinto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Piedmont Lithium Ltd and Rio Tinto ADR, you can compare the effects of market volatilities on Piedmont Lithium and Rio Tinto 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 Piedmont Lithium with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Piedmont Lithium and Rio Tinto.
Diversification Opportunities for Piedmont Lithium and Rio Tinto
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Piedmont and Rio is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR and Piedmont 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 Piedmont Lithium Ltd are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto ADR has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Rio Tinto go up and down completely randomly.
Pair Corralation between Piedmont Lithium and Rio Tinto
Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to under-perform the Rio Tinto. In addition to that, Piedmont Lithium is 4.0 times more volatile than Rio Tinto ADR. It trades about -0.03 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.0 per unit of volatility. If you would invest 6,447 in Rio Tinto ADR on November 9, 2024 and sell it today you would lose (228.00) from holding Rio Tinto ADR or give up 3.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.63% |
| Values | Daily Returns |
Piedmont Lithium Ltd vs. Rio Tinto ADR
Performance |
| Timeline |
| Piedmont Lithium |
| Rio Tinto ADR |
Piedmont Lithium and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Piedmont Lithium and Rio Tinto
The main advantage of trading using opposite Piedmont Lithium and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Piedmont Lithium position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.| Piedmont Lithium vs. Sigma Lithium Resources | Piedmont Lithium vs. Standard Lithium | Piedmont Lithium vs. MP Materials Corp | Piedmont Lithium vs. Vale SA ADR |
| Rio Tinto vs. Vale SA ADR | Rio Tinto vs. Teck Resources Ltd | Rio Tinto vs. MP Materials Corp | Rio Tinto vs. Lithium Americas Corp |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
Other Complementary Tools
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |