Correlation Between Sigma Lithium and American Battery

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

Diversification Opportunities for Sigma Lithium and American Battery

-0.37

Correlation Coefficient

Sigma Lithium  American Battery

Very good diversification

The 3 months correlation between Sigma and American is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and American Battery Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Battery Tec 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 American Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Battery Tec has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and American Battery go up and down completely randomly.

Pair Corralation between Sigma Lithium and American Battery

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 0.8 times more return on investment than American Battery. However, Sigma Lithium Resources is 1.25 times less risky than American Battery. It trades about 0.14 of its potential returns per unit of risk. American Battery Technology is currently generating about -0.02 per unit of risk. If you would invest  967.00  in Sigma Lithium Resources on September 5, 2024 and sell it today you would earn a total of  350.00  from holding Sigma Lithium Resources or generate 36.19% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  American Battery Technology

Sigma Lithium Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting primary indicators, Sigma Lithium disclosed solid returns over the last few months and may actually be approaching a breakup point.

American Battery Tec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Battery Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Battery is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sigma Lithium and American Battery

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

The idea behind Sigma Lithium Resources and American Battery Technology 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..