Correlation Between Sigma Lithium and E3 Lithium

Can any of the company-specific risk be diversified away by investing in both Sigma Lithium and E3 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 Sigma Lithium and E3 Lithium 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 E3 Lithium, you can compare the effects of market volatilities on Sigma Lithium and E3 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 Sigma Lithium with a short position of E3 Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sigma Lithium and E3 Lithium.

Diversification Opportunities for Sigma Lithium and E3 Lithium

0.06

Correlation Coefficient

Sigma Lithium  E3 Lithium

Significant diversification

The 3 months correlation between Sigma and ETL is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and E3 Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E3 Lithium 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 E3 Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E3 Lithium has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and E3 Lithium go up and down completely randomly.

Pair Corralation between Sigma Lithium and E3 Lithium

Assuming the 90 days trading horizon Sigma Lithium Resources is expected to generate 1.31 times more return on investment than E3 Lithium. However, Sigma Lithium is 1.31 times more volatile than E3 Lithium. It trades about 0.01 of its potential returns per unit of risk. E3 Lithium is currently generating about -0.15 per unit of risk. If you would invest  1,600  in Sigma Lithium Resources on September 21, 2024 and sell it today you would lose (31.00) from holding Sigma Lithium Resources or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Sigma Lithium Resources  vs.  E3 Lithium

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. In spite of fairly stable primary indicators, Sigma Lithium is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

E3 Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E3 Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Sigma Lithium and E3 Lithium

The main advantage of trading using opposite Sigma Lithium and E3 Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, E3 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 E3 Lithium will offset losses from the drop in E3 Lithium's long position.

The idea behind Sigma Lithium Resources and E3 Lithium 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.