Correlation Between Mastercard and Sigma Lithium

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

Diversification Opportunities for Mastercard and Sigma Lithium

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Mastercard and Sigma is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard 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 Mastercard 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 Mastercard 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 Mastercard i.e., Mastercard and Sigma Lithium go up and down completely randomly.

Pair Corralation between Mastercard and Sigma Lithium

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.48 times more return on investment than Sigma Lithium. However, Mastercard is 2.09 times less risky than Sigma Lithium. It trades about 0.29 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about 0.0 per unit of risk. If you would invest  31,837  in Mastercard on September 5, 2022 and sell it today you would earn a total of  4,169  from holding Mastercard or generate 13.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Mastercard  vs.  Sigma Lithium Resources

 Performance (%) 
       Timeline  
Mastercard 
Mastercard Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Mastercard Price Channel

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

Mastercard and Sigma Lithium Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mastercard and Sigma Lithium

The main advantage of trading using opposite Mastercard and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard 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 Mastercard 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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