Correlation Between Sigma Lithium and Pilbara Minerals

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

Diversification Opportunities for Sigma Lithium and Pilbara Minerals

0.79

Correlation Coefficient

Sigma Lithium  Pilbara Minerals

Poor diversification

The 3 months correlation between Sigma and Pilbara is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals 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 Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Sigma Lithium and Pilbara Minerals

Given the investment horizon of 90 days Sigma Lithium is expected to generate 1.21 times less return on investment than Pilbara Minerals. In addition to that, Sigma Lithium is 1.79 times more volatile than Pilbara Minerals Limited. It trades about 0.15 of its total potential returns per unit of risk. Pilbara Minerals Limited is currently generating about 0.32 per unit of volatility. If you would invest  131.00  in Pilbara Minerals Limited on October 21, 2024 and sell it today you would earn a total of  16.00  from holding Pilbara Minerals Limited or generate 12.21% 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.  Pilbara Minerals Limited

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.

Pilbara Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sigma Lithium and Pilbara Minerals

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

The idea behind Sigma Lithium Resources and Pilbara Minerals Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.