Correlation Between Sigma Lithium and Lake Resources

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

Diversification Opportunities for Sigma Lithium and Lake Resources

0.6

Correlation Coefficient

Sigma Lithium  Lake Resources

Poor diversification

The 3 months correlation between Sigma and Lake is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Lake Resources go up and down completely randomly.

Pair Corralation between Sigma Lithium and Lake Resources

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 0.55 times more return on investment than Lake Resources. However, Sigma Lithium Resources is 1.8 times less risky than Lake Resources. It trades about 0.01 of its potential returns per unit of risk. Lake Resources NL is currently generating about 0.01 per unit of risk. If you would invest  1,209  in Sigma Lithium Resources on October 6, 2024 and sell it today you would earn a total of  0.00  from holding Sigma Lithium Resources or generate 0.0% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  Lake Resources NL

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.

Lake Resources NL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sigma Lithium and Lake Resources

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

The idea behind Sigma Lithium Resources and Lake Resources NL 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.