Correlation Between Sigma Lithium and Standard Lithium

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

Diversification Opportunities for Sigma Lithium and Standard Lithium

0.46

Correlation Coefficient

Sigma Lithium  Standard Lithium

Very weak diversification

The 3 months correlation between Sigma and Standard is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Standard Lithium go up and down completely randomly.

Pair Corralation between Sigma Lithium and Standard Lithium

Given the investment horizon of 90 days Sigma Lithium Resources is expected to under-perform the Standard Lithium. In addition to that, Sigma Lithium is 1.16 times more volatile than Standard Lithium. It trades about -0.14 of its total potential returns per unit of risk. Standard Lithium is currently generating about -0.06 per unit of volatility. If you would invest  162.00  in Standard Lithium on January 20, 2025 and sell it today you would lose (30.00) from holding Standard Lithium or give up 18.52% of portfolio value over 90 days.

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

Sigma Lithium Resources  vs.  Standard Lithium

Sigma Lithium Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sigma Lithium Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Sigma Lithium and Standard Lithium

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

The idea behind Sigma Lithium Resources and Standard 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.