Correlation Between Core Lithium and Sigma Lithium

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

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

Diversification Opportunities for Core Lithium and Sigma Lithium

0.61

Correlation Coefficient

Core Lithium  Sigma Lithium

Poor diversification

The 3 months correlation between Core and Sigma is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Core Lithium and Sigma Lithium Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Lithium Resources and Core 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 Core Lithium are associated (or correlated) with Sigma Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigma Lithium Resources has no effect on the direction of Core Lithium i.e., Core Lithium and Sigma Lithium go up and down completely randomly.

Pair Corralation between Core Lithium and Sigma Lithium

Assuming the 90 days horizon Core Lithium is expected to generate 4.67 times more return on investment than Sigma Lithium. However, Core Lithium is 4.67 times more volatile than Sigma Lithium Resources. It trades about 0.05 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about 0.01 per unit of risk. If you would invest  5.38  in Core Lithium on October 6, 2024 and sell it today you would lose (0.38) from holding Core Lithium or give up 7.06% of portfolio value over 90 days.

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

Core Lithium  vs.  Sigma Lithium Resources

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Core Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sigma Lithium Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sigma Lithium Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Core Lithium and Sigma Lithium

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

The idea behind Core Lithium and Sigma Lithium Resources 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.