Correlation Between Vale SA and Sigma Lithium

Can any of the company-specific risk be diversified away by investing in both Vale SA and Sigma Lithium 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 Vale SA and Sigma Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vale SA ADR and Sigma Lithium Resources, you can compare the effects of market volatilities on Vale SA and Sigma Lithium 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 Vale SA with a short position of Sigma Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vale SA and Sigma Lithium.

Diversification Opportunities for Vale SA and Sigma Lithium

0.0

Correlation Coefficient

Vale SA  Sigma Lithium

Pay attention - limited upside

The 3 months correlation between Vale and Sigma is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA ADR and Sigma Lithium Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Lithium Resources and Vale SA 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 Vale SA ADR are associated (or correlated) with Sigma Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigma Lithium Resources has no effect on the direction of Vale SA i.e., Vale SA and Sigma Lithium go up and down completely randomly.

Pair Corralation between Vale SA and Sigma Lithium

Given the investment horizon of 90 days Vale SA ADR is expected to generate 0.46 times more return on investment than Sigma Lithium. However, Vale SA ADR is 2.17 times less risky than Sigma Lithium. It trades about 0.19 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about 0.04 per unit of risk. If you would invest  852.00  in Vale SA ADR on December 28, 2024 and sell it today you would earn a total of  161.00  from holding Vale SA ADR or generate 18.9% return on investment over 90 days.

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

Vale SA ADR  vs.  Sigma Lithium Resources

Vale SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Vale SA exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Vale SA and Sigma Lithium

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

The idea behind Vale SA ADR and Sigma Lithium Resources 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.