Correlation Between Cabot and Standard Lithium

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

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

Diversification Opportunities for Cabot and Standard Lithium

0.26

Correlation Coefficient

Cabot  Standard Lithium

Modest diversification

The 3 months correlation between Cabot and Standard is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Cabot 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 Cabot 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 Cabot i.e., Cabot and Standard Lithium go up and down completely randomly.

Pair Corralation between Cabot and Standard Lithium

Considering the 90-day investment horizon Cabot is expected to under-perform the Standard Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Cabot is 2.44 times less risky than Standard Lithium. The stock trades about -0.05 of its potential returns per unit of risk. The Standard Lithium is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  138.00  in Standard Lithium on May 5, 2025 and sell it today you would earn a total of  91.00  from holding Standard Lithium or generate 65.94% return on investment over 90 days.

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

Cabot  vs.  Standard Lithium

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Cabot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Standard Lithium

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 16 (%) 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 Cabot and Standard Lithium

The main advantage of trading using opposite Cabot and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabot 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 Cabot 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.