Correlation Between Standard Lithium and Materion

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

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

Diversification Opportunities for Standard Lithium and Materion

0.03

Correlation Coefficient

Standard Lithium  Materion

Significant diversification

The 3 months correlation between Standard and Materion is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Materion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materion 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 Materion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materion has no effect on the direction of Standard Lithium i.e., Standard Lithium and Materion go up and down completely randomly.

Pair Corralation between Standard Lithium and Materion

Considering the 90-day investment horizon Standard Lithium is expected to generate 2.56 times more return on investment than Materion. However, Standard Lithium is 2.56 times more volatile than Materion. It trades about 0.12 of its potential returns per unit of risk. Materion is currently generating about 0.08 per unit of risk. If you would invest  121.00  in Standard Lithium on September 3, 2024 and sell it today you would earn a total of  53.00  from holding Standard Lithium or generate 43.8% return on investment over 90 days.

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

Standard Lithium  vs.  Materion

Standard Lithium

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 9 (%) 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.

Materion

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Materion are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Materion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Standard Lithium and Materion

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

The idea behind Standard Lithium and Materion 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.