Correlation Between Sigma Lithium and Rolls Royce

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

Diversification Opportunities for Sigma Lithium and Rolls Royce

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Sigma and Rolls is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Rolls Royce Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Rolls Royce go up and down completely randomly.

Pair Corralation between Sigma Lithium and Rolls Royce

Given the investment horizon of 90 days Sigma Lithium Resources is expected to under-perform the Rolls Royce. In addition to that, Sigma Lithium is 1.65 times more volatile than Rolls Royce Holdings. It trades about -0.01 of its total potential returns per unit of risk. Rolls Royce Holdings is currently generating about 0.15 per unit of volatility. If you would invest  97.00  in Rolls Royce Holdings on September 2, 2022 and sell it today you would earn a total of  8.00  from holding Rolls Royce Holdings or generate 8.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Sigma Lithium Resources  vs.  Rolls Royce Holdings

 Performance (%) 
       Timeline  
Sigma Lithium Resources 
Sigma Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Sigma Lithium Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain primary indicators, Sigma Lithium revealed solid returns over the last few months and may actually be approaching a breakup point.

Sigma Price Channel

Rolls Royce Holdings 
Rolls Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Rolls Royce showed solid returns over the last few months and may actually be approaching a breakup point.

Rolls Price Channel

Sigma Lithium and Rolls Royce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sigma Lithium and Rolls Royce

The main advantage of trading using opposite Sigma Lithium and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, Rolls Royce 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 Rolls Royce will offset losses from the drop in Rolls Royce's long position.
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The idea behind Sigma Lithium Resources and Rolls Royce Holdings 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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