Correlation Between ECB Bancorp and Sigma Lithium

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

Diversification Opportunities for ECB Bancorp and Sigma Lithium

0.62

Correlation Coefficient

ECB Bancorp  Sigma Lithium

Poor diversification

The 3 months correlation between ECB and Sigma is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ECB Bancorp 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 ECB 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 ECB 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 Resources has no effect on the direction of ECB Bancorp i.e., ECB Bancorp and Sigma Lithium go up and down completely randomly.

Pair Corralation between ECB Bancorp and Sigma Lithium

Given the investment horizon of 90 days ECB Bancorp is expected to under-perform the Sigma Lithium. But the stock apears to be less risky and, when comparing its historical volatility, ECB Bancorp is 4.04 times less risky than Sigma Lithium. The stock trades about -0.14 of its potential returns per unit of risk. The Sigma Lithium Resources is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,152  in Sigma Lithium Resources on January 26, 2024 and sell it today you would earn a total of  255.00  from holding Sigma Lithium Resources or generate 22.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

ECB Bancorp  vs.  Sigma Lithium Resources

ECB Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Sigma Lithium Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sigma Lithium Resources 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 primary indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with ECB Bancorp and Sigma Lithium

The main advantage of trading using opposite ECB Bancorp and Sigma Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECB 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.

The idea behind ECB Bancorp 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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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 the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.