Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Galectin Therapeutics 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 Galectin Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Galectin Therapeutics, you can compare the effects of market volatilities on Johnson Johnson and Galectin Therapeutics 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 Galectin Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Galectin Therapeutics.
Diversification Opportunities for Johnson Johnson and Galectin Therapeutics
The 3 months correlation between Johnson and Galectin is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Galectin Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galectin Therapeutics 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 Galectin Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galectin Therapeutics has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Galectin Therapeutics go up and down completely randomly.
Pair Corralation between Johnson Johnson and Galectin Therapeutics
Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Galectin Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 5.14 times less risky than Galectin Therapeutics. The stock trades about -0.09 of its potential returns per unit of risk. The Galectin Therapeutics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 208.00 in Galectin Therapeutics on March 6, 2024 and sell it today you would earn a total of 61.00 from holding Galectin Therapeutics or generate 29.33% return on investment over 90 days.
Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Galectin Therapeutics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Galectin Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.