Correlation Between Sigma Lithium and Kiplin Metals

Can any of the company-specific risk be diversified away by investing in both Sigma Lithium and Kiplin Metals 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 Kiplin Metals 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 Kiplin Metals, you can compare the effects of market volatilities on Sigma Lithium and Kiplin Metals 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 Kiplin Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sigma Lithium and Kiplin Metals.

Diversification Opportunities for Sigma Lithium and Kiplin Metals

0.3

Correlation Coefficient

Sigma Lithium  Kiplin Metals

Weak diversification

The 3 months correlation between Sigma and Kiplin is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Kiplin Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kiplin Metals 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 Kiplin Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kiplin Metals has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Kiplin Metals go up and down completely randomly.

Pair Corralation between Sigma Lithium and Kiplin Metals

Assuming the 90 days trading horizon Sigma Lithium Resources is expected to generate 0.71 times more return on investment than Kiplin Metals. However, Sigma Lithium Resources is 1.42 times less risky than Kiplin Metals. It trades about 0.0 of its potential returns per unit of risk. Kiplin Metals is currently generating about -0.13 per unit of risk. If you would invest  1,925  in Sigma Lithium Resources on September 1, 2024 and sell it today you would lose (26.00) from holding Sigma Lithium Resources or give up 1.35% of portfolio value over 90 days.

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

Sigma Lithium Resources  vs.  Kiplin Metals

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.

Kiplin Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kiplin Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Kiplin Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sigma Lithium and Kiplin Metals

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

The idea behind Sigma Lithium Resources and Kiplin Metals 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.