Correlation Between Johnson Johnson and Bristol Myers
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Bristol Myers 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 Bristol Myers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Bristol Myers Squibb, you can compare the effects of market volatilities on Johnson Johnson and Bristol Myers 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 Bristol Myers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Bristol Myers.
Diversification Opportunities for Johnson Johnson and Bristol Myers
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Johnson and Bristol is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Bristol Myers Squibb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bristol Myers Squibb 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 Bristol Myers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bristol Myers Squibb has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Bristol Myers go up and down completely randomly.
Pair Corralation between Johnson Johnson and Bristol Myers
Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.8 times more return on investment than Bristol Myers. However, Johnson Johnson is 1.24 times less risky than Bristol Myers. It trades about -0.22 of its potential returns per unit of risk. Bristol Myers Squibb is currently generating about -0.23 per unit of risk. If you would invest 15,577 in Johnson Johnson on January 26, 2024 and sell it today you would lose (724.00) from holding Johnson Johnson or give up 4.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. Bristol Myers Squibb
Performance |
| Timeline |
| Johnson Johnson |
| Bristol Myers Squibb |
Johnson Johnson and Bristol Myers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Bristol Myers
The main advantage of trading using opposite Johnson Johnson and Bristol Myers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Bristol Myers 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 Bristol Myers will offset losses from the drop in Bristol Myers' long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Bristol Myers Squibb | Johnson Johnson vs. Amgen Inc | Johnson Johnson vs. Pfizer Inc |
| Bristol Myers vs. AbbVie Inc | Bristol Myers vs. Merck Company | Bristol Myers vs. Gilead Sciences | Bristol Myers vs. Johnson Johnson |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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