Correlation Between Sigma Lithium and American Express

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

Diversification Opportunities for Sigma Lithium and American Express

-0.88

Correlation Coefficient

Sigma Lithium  American Express

Pay attention - limited upside

The 3 months correlation between Sigma and American is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and American Express go up and down completely randomly.

Pair Corralation between Sigma Lithium and American Express

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 4.3 times more return on investment than American Express. However, Sigma Lithium is 4.3 times more volatile than American Express. It trades about 0.09 of its potential returns per unit of risk. American Express is currently generating about -0.2 per unit of risk. If you would invest  1,259  in Sigma Lithium Resources on January 20, 2024 and sell it today you would earn a total of  82.00  from holding Sigma Lithium Resources or generate 6.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Sigma Lithium Resources  vs.  American Express

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 conflicting 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.

American Express

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sigma Lithium and American Express

The main advantage of trading using opposite Sigma Lithium and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.

The idea behind Sigma Lithium Resources and American Express 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.