Correlation Between Sigma Lithium and American Express

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

Diversification Opportunities for Sigma Lithium and American Express

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between Sigma and American is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and American Express go up and down completely randomly.

Pair Corralation between Sigma Lithium and American Express

Given the investment horizon of 90 days Sigma Lithium is expected to generate 2.74 times less return on investment than American Express. In addition to that, Sigma Lithium is 2.19 times more volatile than American Express. It trades about 0.05 of its total potential returns per unit of risk. American Express is currently generating about 0.28 per unit of volatility. If you would invest  13,931  in American Express on September 4, 2022 and sell it today you would earn a total of  1,744  from holding American Express or generate 12.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Sigma Lithium Resources  vs.  American Express

 Performance (%) 
       Timeline  
Sigma Lithium Resources 
Sigma Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Sigma Lithium revealed solid returns over the last few months and may actually be approaching a breakup point.

Sigma Price Channel

American Express 
American Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in January 2023.

American Price Channel

Sigma Lithium and American Express Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sigma Lithium and American Express

The main advantage of trading using opposite Sigma Lithium and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, American Express 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 Express will offset losses from the drop in American Express' long position.
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The idea behind Sigma Lithium Resources and American Express 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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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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