Correlation Between Merchants Bancorp and Sigma Lithium

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

Diversification Opportunities for Merchants Bancorp and Sigma Lithium

-0.55
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Merchants and Sigma is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Sigma Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Lithium Corp and Merchants Bancorp 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 Merchants Bancorp 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 Corp has no effect on the direction of Merchants Bancorp i.e., Merchants Bancorp and Sigma Lithium go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Sigma Lithium

Given the investment horizon of 90 days Merchants Bancorp is expected to generate 0.55 times more return on investment than Sigma Lithium. However, Merchants Bancorp is 1.82 times less risky than Sigma Lithium. It trades about 0.09 of its potential returns per unit of risk. Sigma Lithium Corp is currently generating about -0.18 per unit of risk. If you would invest  2,395  in Merchants Bancorp on August 31, 2022 and sell it today you would earn a total of  82.00  from holding Merchants Bancorp or generate 3.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.24%
ValuesDaily Returns

Merchants Bancorp  vs.  Sigma Lithium Corp

 Performance (%) 
       Timeline  
Merchants Bancorp 
Merchants Performance
0 of 100
Over the last 90 days Merchants Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Merchants Bancorp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Merchants Price Channel

Sigma Lithium Corp 
Sigma Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Corp are ranked lower than 9 (%) 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

Merchants Bancorp and Sigma Lithium Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Sigma Lithium

The main advantage of trading using opposite Merchants Bancorp and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp 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 Merchants Bancorp and Sigma Lithium Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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