Correlation Between Piedmont Lithium and Teck Resources

Can any of the company-specific risk be diversified away by investing in both Piedmont Lithium and Teck Resources 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 Teck Resources 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 Teck Resources Ltd, you can compare the effects of market volatilities on Piedmont Lithium and Teck Resources 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 Teck Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Piedmont Lithium and Teck Resources.

Diversification Opportunities for Piedmont Lithium and Teck Resources

0.18

Correlation Coefficient

Piedmont Lithium  Teck Resources

Average diversification

The 3 months correlation between Piedmont and Teck is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Piedmont Lithium Ltd and Teck Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teck Resources 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 Teck Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teck Resources has no effect on the direction of Piedmont Lithium i.e., Piedmont Lithium and Teck Resources go up and down completely randomly.

Pair Corralation between Piedmont Lithium and Teck Resources

Considering the 90-day investment horizon Piedmont Lithium Ltd is expected to under-perform the Teck Resources. In addition to that, Piedmont Lithium is 3.16 times more volatile than Teck Resources Ltd. It trades about -0.02 of its total potential returns per unit of risk. Teck Resources Ltd is currently generating about -0.03 per unit of volatility. If you would invest  4,719  in Teck Resources Ltd on August 31, 2024 and sell it today you would lose (95.00) from holding Teck Resources Ltd or give up 2.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Piedmont Lithium Ltd  vs.  Teck Resources Ltd

Piedmont Lithium

Risk-Adjusted Performance

11 of 100

OK

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 conflicting essential indicators, Piedmont Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

Teck Resources

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Teck Resources Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Teck Resources is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Piedmont Lithium and Teck Resources

The main advantage of trading using opposite Piedmont Lithium and Teck Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Piedmont Lithium position performs unexpectedly, Teck Resources 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 Teck Resources will offset losses from the drop in Teck Resources' long position.

The idea behind Piedmont Lithium Ltd and Teck Resources 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.