Correlation Between Johnson Johnson and Novartis
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Novartis 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 Johnson Johnson and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Novartis AG ADR, you can compare the effects of market volatilities on Johnson Johnson and Novartis 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 Johnson Johnson with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Novartis.
Diversification Opportunities for Johnson Johnson and Novartis
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and Novartis is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and Johnson Johnson 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 Johnson Johnson are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Novartis go up and down completely randomly.
Pair Corralation between Johnson Johnson and Novartis
Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.14 times less risky than Novartis. The stock trades about -0.03 of its potential returns per unit of risk. The Novartis AG ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 9,346 in Novartis AG ADR on January 26, 2024 and sell it today you would earn a total of 489.00 from holding Novartis AG ADR or generate 5.23% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Johnson Johnson vs. Novartis AG ADR
Performance |
Timeline |
Johnson Johnson |
Novartis AG ADR |
Johnson Johnson and Novartis Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Johnson Johnson and Novartis
The main advantage of trading using opposite Johnson Johnson and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.Johnson Johnson vs. Merck Company | Johnson Johnson vs. Bristol Myers Squibb | Johnson Johnson vs. Amgen Inc | Johnson Johnson vs. Pfizer Inc |
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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 the Equity Valuation module to check real value of public entities based on technical and fundamental data.
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