Correlation Between Sigma Lithium and Patriot Battery

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

Diversification Opportunities for Sigma Lithium and Patriot Battery

0.22

Correlation Coefficient

Sigma Lithium  Patriot Battery

Modest diversification

The 3 months correlation between Sigma and Patriot is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Patriot Battery Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patriot Battery 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 Patriot Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patriot Battery Metals has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Patriot Battery go up and down completely randomly.

Pair Corralation between Sigma Lithium and Patriot Battery

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 0.81 times more return on investment than Patriot Battery. However, Sigma Lithium Resources is 1.24 times less risky than Patriot Battery. It trades about 0.04 of its potential returns per unit of risk. Patriot Battery Metals is currently generating about -0.04 per unit of risk. If you would invest  1,117  in Sigma Lithium Resources on December 22, 2024 and sell it today you would earn a total of  51.00  from holding Sigma Lithium Resources or generate 4.57% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  Patriot Battery Metals

Sigma Lithium Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 3 (%) 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.

Patriot Battery Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Patriot Battery Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sigma Lithium and Patriot Battery

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

The idea behind Sigma Lithium Resources and Patriot Battery 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.