Correlation Between Sigma Lithium and KWG Resources
Can any of the company-specific risk be diversified away by investing in both Sigma Lithium and KWG Resources 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 KWG Resources 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 KWG Resources, you can compare the effects of market volatilities on Sigma Lithium and KWG Resources 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 KWG Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sigma Lithium and KWG Resources.
Diversification Opportunities for Sigma Lithium and KWG Resources
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Sigma and KWG is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and KWG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KWG Resources 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 KWG Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KWG Resources has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and KWG Resources go up and down completely randomly.
Pair Corralation between Sigma Lithium and KWG Resources
Given the investment horizon of 90 days Sigma Lithium is expected to generate 9.2 times less return on investment than KWG Resources. But when comparing it to its historical volatility, Sigma Lithium Resources is 4.04 times less risky than KWG Resources. It trades about 0.03 of its potential returns per unit of risk. KWG Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.80 in KWG Resources on August 25, 2024 and sell it today you would lose (0.10) from holding KWG Resources or give up 12.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sigma Lithium Resources vs. KWG Resources
Performance |
| Timeline |
| Sigma Lithium Resources |
| KWG Resources |
Sigma Lithium and KWG Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sigma Lithium and KWG Resources
The main advantage of trading using opposite Sigma Lithium and KWG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, KWG Resources 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 KWG Resources will offset losses from the drop in KWG Resources' long position.| Sigma Lithium vs. Piedmont Lithium Ltd | Sigma Lithium vs. Standard Lithium | Sigma Lithium vs. MP Materials Corp | Sigma Lithium vs. Vale SA ADR |
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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