Correlation Between Sigma Lithium and Ameriwest Lithium

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

Diversification Opportunities for Sigma Lithium and Ameriwest Lithium

-0.45

Correlation Coefficient

Sigma Lithium  Ameriwest Lithium

Very good diversification

The 3 months correlation between Sigma and Ameriwest is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Ameriwest Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriwest 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 Ameriwest Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriwest Lithium has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Ameriwest Lithium go up and down completely randomly.

Pair Corralation between Sigma Lithium and Ameriwest Lithium

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 0.6 times more return on investment than Ameriwest Lithium. However, Sigma Lithium Resources is 1.66 times less risky than Ameriwest Lithium. It trades about 0.16 of its potential returns per unit of risk. Ameriwest Lithium is currently generating about -0.03 per unit of risk. If you would invest  980.00  in Sigma Lithium Resources on August 31, 2024 and sell it today you would earn a total of  409.00  from holding Sigma Lithium Resources or generate 41.73% return on investment over 90 days.

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

Sigma Lithium Resources  vs.  Ameriwest Lithium

Sigma Lithium Resources

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 12 (%) 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.

Ameriwest Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ameriwest Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sigma Lithium and Ameriwest Lithium

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

The idea behind Sigma Lithium Resources and Ameriwest 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..