Correlation Between Standard Lithium and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Standard 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 Standard 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 Standard Lithium and Rio Tinto ADR, you can compare the effects of market volatilities on Standard 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 Standard Lithium with a short position of Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Lithium and Rio Tinto.
Diversification Opportunities for Standard Lithium and Rio Tinto
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Standard and Rio is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium 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 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 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 Standard Lithium i.e., Standard Lithium and Rio Tinto go up and down completely randomly.
Pair Corralation between Standard Lithium and Rio Tinto
Considering the 90-day investment horizon Standard Lithium is expected to generate 3.78 times more return on investment than Rio Tinto. However, Standard Lithium is 3.78 times more volatile than Rio Tinto ADR. It trades about 0.01 of its potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.0 per unit of risk. If you would invest 217.00 in Standard Lithium on August 24, 2024 and sell it today you would lose (51.00) from holding Standard Lithium or give up 23.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Standard Lithium vs. Rio Tinto ADR
Performance |
| Timeline |
| Standard Lithium |
| Rio Tinto ADR |
Standard Lithium and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Standard Lithium and Rio Tinto
The main advantage of trading using opposite Standard Lithium and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard 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.| Standard Lithium vs. Lithium Americas Corp | Standard Lithium vs. Piedmont Lithium Ltd | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Teck Resources Ltd |
| 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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