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

0.17

Correlation Coefficient

Piedmont Lithium  Rio Tinto

Average diversification

The 3 months correlation between Piedmont and Rio is 0.17. 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 generate 4.57 times more return on investment than Rio Tinto. However, Piedmont Lithium is 4.57 times more volatile than Rio Tinto ADR. It trades about 0.03 of its potential returns per unit of risk. Rio Tinto ADR is currently generating about -0.02 per unit of risk. If you would invest  1,265  in Piedmont Lithium Ltd on September 3, 2024 and sell it today you would lose (3.00) from holding Piedmont Lithium Ltd or give up 0.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Rio Tinto ADR

Piedmont Lithium

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Piedmont Lithium Ltd are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, Piedmont Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

Rio Tinto ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Rio Tinto is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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.

The idea behind Piedmont Lithium Ltd and Rio Tinto ADR 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 Stocks Directory module to find actively traded stocks across global markets.