Correlation Between Sigma Lithium and Frontier Lithium

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

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

Diversification Opportunities for Sigma Lithium and Frontier Lithium

-0.03

Correlation Coefficient

Sigma Lithium  Frontier Lithium

Good diversification

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

Pair Corralation between Sigma Lithium and Frontier Lithium

Assuming the 90 days trading horizon Sigma Lithium is expected to generate 5.36 times less return on investment than Frontier Lithium. But when comparing it to its historical volatility, Sigma Lithium Resources is 1.37 times less risky than Frontier Lithium. It trades about 0.03 of its potential returns per unit of risk. Frontier Lithium is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Frontier Lithium on December 29, 2024 and sell it today you would earn a total of  15.00  from holding Frontier Lithium or generate 34.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Sigma Lithium Resources  vs.  Frontier Lithium

Sigma Lithium Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Sigma Lithium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Frontier Lithium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Lithium are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Frontier Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sigma Lithium and Frontier Lithium

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

The idea behind Sigma Lithium Resources and Frontier 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.