Correlation Between Sigma Lithium and Rio Tinto

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

Diversification Opportunities for Sigma Lithium and Rio Tinto

-0.04

Correlation Coefficient

Sigma Lithium  Rio Tinto

Good diversification

The 3 months correlation between Sigma and Rio is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Rio Tinto ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto ADR 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto ADR has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Rio Tinto go up and down completely randomly.

Pair Corralation between Sigma Lithium and Rio Tinto

Given the investment horizon of 90 days Sigma Lithium is expected to generate 1.56 times less return on investment than Rio Tinto. In addition to that, Sigma Lithium is 2.66 times more volatile than Rio Tinto ADR. It trades about 0.03 of its total potential returns per unit of risk. Rio Tinto ADR is currently generating about 0.13 per unit of volatility. If you would invest  5,717  in Rio Tinto ADR on December 26, 2024 and sell it today you would earn a total of  570.00  from holding Rio Tinto ADR or generate 9.97% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  Rio Tinto ADR

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 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.

Rio Tinto ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sigma Lithium and Rio Tinto

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

The idea behind Sigma Lithium Resources and Rio Tinto ADR 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.