Correlation Between Foran Mining and Sigma Lithium

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

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

Diversification Opportunities for Foran Mining and Sigma Lithium

0.75

Correlation Coefficient

Foran Mining  Sigma Lithium

Poor diversification

The 3 months correlation between Foran and Sigma is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Foran Mining 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 Foran Mining 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 Foran Mining 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 Foran Mining i.e., Foran Mining and Sigma Lithium go up and down completely randomly.

Pair Corralation between Foran Mining and Sigma Lithium

Assuming the 90 days trading horizon Foran Mining is expected to generate 2.36 times less return on investment than Sigma Lithium. But when comparing it to its historical volatility, Foran Mining is 1.7 times less risky than Sigma Lithium. It trades about 0.08 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,399  in Sigma Lithium Resources on September 13, 2024 and sell it today you would earn a total of  336.00  from holding Sigma Lithium Resources or generate 24.02% return on investment over 90 days.

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

Foran Mining  vs.  Sigma Lithium Resources

Foran Mining

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Foran Mining are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Foran Mining may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sigma Lithium Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating primary indicators, Sigma Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Foran Mining and Sigma Lithium

The main advantage of trading using opposite Foran Mining and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foran Mining 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 Foran Mining 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.