Correlation Between Sigma Lithium and Johnson Johnson

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

Diversification Opportunities for Sigma Lithium and Johnson Johnson

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Sigma and Johnson is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sigma Lithium Resources and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson 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 Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Sigma Lithium i.e., Sigma Lithium and Johnson Johnson go up and down completely randomly.

Pair Corralation between Sigma Lithium and Johnson Johnson

Given the investment horizon of 90 days Sigma Lithium Resources is expected to generate 4.05 times more return on investment than Johnson Johnson. However, Sigma Lithium is 4.05 times more volatile than Johnson Johnson. It trades about 0.17 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.15 per unit of risk. If you would invest  2,291  in Sigma Lithium Resources on September 4, 2022 and sell it today you would earn a total of  1,116  from holding Sigma Lithium Resources or generate 48.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.44%
ValuesDaily Returns

Sigma Lithium Resources  vs.  Johnson Johnson

 Performance (%) 
       Timeline  
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

Johnson Johnson 
Johnson Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Johnson Price Channel

Sigma Lithium and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sigma Lithium and Johnson Johnson

The main advantage of trading using opposite Sigma Lithium and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sigma Lithium position performs unexpectedly, Johnson Johnson 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 Johnson Johnson will offset losses from the drop in Johnson Johnson's long position.
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The idea behind Sigma Lithium Resources and Johnson Johnson 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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