Correlation Between LCI Industries and Sigma Lithium

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Can any of the company-specific risk be diversified away by investing in both LCI Industries and Sigma 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 LCI Industries and Sigma Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LCI Industries and Sigma Lithium Resources, you can compare the effects of market volatilities on LCI Industries and Sigma 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 LCI Industries with a short position of Sigma Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of LCI Industries and Sigma Lithium.

Diversification Opportunities for LCI Industries and Sigma Lithium

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between LCI Industries and Sigma is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding LCI Industries and Sigma Lithium Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Lithium Resources and LCI Industries 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 LCI Industries are associated (or correlated) with Sigma Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigma Lithium Resources has no effect on the direction of LCI Industries i.e., LCI Industries and Sigma Lithium go up and down completely randomly.

Pair Corralation between LCI Industries and Sigma Lithium

Given the investment horizon of 90 days LCI Industries is expected to under-perform the Sigma Lithium. But the stock apears to be less risky and, when comparing its historical volatility, LCI Industries is 1.55 times less risky than Sigma Lithium. The stock trades about -0.01 of its potential returns per unit of risk. The Sigma Lithium Resources is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Sigma Lithium Resources on September 10, 2022 and sell it today you would earn a total of  3,226  from holding Sigma Lithium Resources or generate 1536.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

LCI Industries  vs.  Sigma Lithium Resources

 Performance (%) 
       Timeline  
LCI Industries 
LCI Industries Performance
0 of 100
Over the last 90 days LCI Industries 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 forward indicators remain nearly stable which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

LCI Industries Price Channel

Sigma Lithium Resources 
Sigma Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Sigma Lithium revealed solid returns over the last few months and may actually be approaching a breakup point.

Sigma Price Channel

LCI Industries and Sigma Lithium Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LCI Industries and Sigma Lithium

The main advantage of trading using opposite LCI Industries and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LCI Industries position performs unexpectedly, Sigma 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 Sigma Lithium will offset losses from the drop in Sigma Lithium's long position.
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The idea behind LCI Industries and Sigma Lithium Resources 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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