Correlation Between Sigma Lithium and Nouveau Monde

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

Diversification Opportunities for Sigma Lithium and Nouveau Monde

0.12

Correlation Coefficient

Sigma Lithium  Nouveau Monde

Average diversification

The 3 months correlation between Sigma and Nouveau is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Nouveau Monde Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nouveau Monde Graphite 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 Nouveau Monde. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nouveau Monde Graphite has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Nouveau Monde go up and down completely randomly.

Pair Corralation between Sigma Lithium and Nouveau Monde

Given the investment horizon of 90 days Sigma Lithium is expected to generate 1.77 times less return on investment than Nouveau Monde. But when comparing it to its historical volatility, Sigma Lithium Resources is 1.77 times less risky than Nouveau Monde. It trades about 0.04 of its potential returns per unit of risk. Nouveau Monde Graphite is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  157.00  in Nouveau Monde Graphite on December 28, 2024 and sell it today you would earn a total of  5.00  from holding Nouveau Monde Graphite or generate 3.18% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  Nouveau Monde Graphite

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. Despite quite conflicting primary indicators, Sigma Lithium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nouveau Monde Graphite

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nouveau Monde Graphite are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Nouveau Monde reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sigma Lithium and Nouveau Monde

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

The idea behind Sigma Lithium Resources and Nouveau Monde Graphite 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.