Correlation Between Largo Resources and Standard Lithium

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

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

Diversification Opportunities for Largo Resources and Standard Lithium

0.76

Correlation Coefficient

Largo Resources  Standard Lithium

Poor diversification

The 3 months correlation between Largo and Standard is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Largo Resources and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Largo Resources 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 Largo Resources 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 Largo Resources i.e., Largo Resources and Standard Lithium go up and down completely randomly.

Pair Corralation between Largo Resources and Standard Lithium

Considering the 90-day investment horizon Largo Resources is expected to generate 2.48 times less return on investment than Standard Lithium. But when comparing it to its historical volatility, Largo Resources is 1.47 times less risky than Standard Lithium. It trades about 0.07 of its potential returns per unit of risk. Standard Lithium is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  121.00  in Standard Lithium on August 31, 2024 and sell it today you would earn a total of  48.00  from holding Standard Lithium or generate 39.67% return on investment over 90 days.

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

Largo Resources  vs.  Standard Lithium

Largo Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Largo Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Largo Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Standard Lithium

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, Standard Lithium demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Largo Resources and Standard Lithium

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

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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.