Correlation Between Sigma Lithium and Core Lithium

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

Diversification Opportunities for Sigma Lithium and Core Lithium

0.69

Correlation Coefficient

Sigma Lithium  Core Lithium

Poor diversification

The 3 months correlation between Sigma and Core is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Core Lithium go up and down completely randomly.

Pair Corralation between Sigma Lithium and Core Lithium

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 0.43 times more return on investment than Core Lithium. However, Sigma Lithium Resources is 2.31 times less risky than Core Lithium. It trades about 0.15 of its potential returns per unit of risk. Core Lithium is currently generating about 0.02 per unit of risk. If you would invest  1,101  in Sigma Lithium Resources on October 21, 2024 and sell it today you would earn a total of  100.00  from holding Sigma Lithium Resources or generate 9.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Sigma Lithium Resources  vs.  Core Lithium

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.

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.

Pair Trading with Sigma Lithium and Core Lithium

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

The idea behind Sigma Lithium Resources and Core 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.