Correlation Between Pure Energy and Sigma Lithium

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

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

Diversification Opportunities for Pure Energy and Sigma Lithium

0.5

Correlation Coefficient

Pure Energy  Sigma Lithium

Very weak diversification

The 3 months correlation between Pure and Sigma is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Pure Energy Minerals 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 Pure Energy 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 Pure Energy Minerals 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 Pure Energy i.e., Pure Energy and Sigma Lithium go up and down completely randomly.

Pair Corralation between Pure Energy and Sigma Lithium

Given the investment horizon of 90 days Pure Energy Minerals is expected to generate 1.67 times more return on investment than Sigma Lithium. However, Pure Energy is 1.67 times more volatile than Sigma Lithium Resources. It trades about 0.03 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about 0.0 per unit of risk. If you would invest  30.00  in Pure Energy Minerals on September 1, 2024 and sell it today you would earn a total of  0.00  from holding Pure Energy Minerals or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Pure Energy Minerals  vs.  Sigma Lithium Resources

Pure Energy Minerals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Energy Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pure Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Sigma Lithium Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Sigma Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pure Energy and Sigma Lithium

The main advantage of trading using opposite Pure Energy and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pure Energy 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 Pure Energy Minerals 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 Global Correlations module to find global opportunities by holding instruments from different markets.