Correlation Between US GoldMining and Piedmont Lithium

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Can any of the company-specific risk be diversified away by investing in both US GoldMining and Piedmont 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 US GoldMining and Piedmont Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US GoldMining Warrant and Piedmont Lithium Ltd, you can compare the effects of market volatilities on US GoldMining and Piedmont 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 US GoldMining with a short position of Piedmont Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of US GoldMining and Piedmont Lithium.

Diversification Opportunities for US GoldMining and Piedmont Lithium

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between USGOW and Piedmont is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding US GoldMining Warrant and Piedmont Lithium Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piedmont Lithium and US GoldMining 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 US GoldMining Warrant are associated (or correlated) with Piedmont Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piedmont Lithium has no effect on the direction of US GoldMining i.e., US GoldMining and Piedmont Lithium go up and down completely randomly.

Pair Corralation between US GoldMining and Piedmont Lithium

Assuming the 90 days horizon US GoldMining Warrant is expected to generate 2.5 times more return on investment than Piedmont Lithium. However, US GoldMining is 2.5 times more volatile than Piedmont Lithium Ltd. It trades about 0.17 of its potential returns per unit of risk. Piedmont Lithium Ltd is currently generating about 0.08 per unit of risk. If you would invest  120.00  in US GoldMining Warrant on August 25, 2024 and sell it today you would earn a total of  60.00  from holding US GoldMining Warrant or generate 50.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.65%
ValuesDaily Returns

US GoldMining Warrant  vs.  Piedmont Lithium Ltd

 Performance 
       Timeline  
US GoldMining Warrant 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in US GoldMining Warrant are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, US GoldMining showed solid returns over the last few months and may actually be approaching a breakup point.
Piedmont Lithium 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Piedmont Lithium Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Piedmont Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

US GoldMining and Piedmont Lithium Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with US GoldMining and Piedmont Lithium

The main advantage of trading using opposite US GoldMining and Piedmont Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US GoldMining position performs unexpectedly, Piedmont 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 Piedmont Lithium will offset losses from the drop in Piedmont Lithium's long position.
The idea behind US GoldMining Warrant and Piedmont Lithium Ltd 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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