Correlation Between Chevron Corp and Johnson Johnson

Can any of the company-specific risk be diversified away by investing in both Chevron Corp 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 Chevron Corp and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chevron Corp and Johnson Johnson, you can compare the effects of market volatilities on Chevron Corp 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 Chevron Corp with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Johnson Johnson.

Diversification Opportunities for Chevron Corp and Johnson Johnson

-0.65

Correlation Coefficient

Chevron Corp  Johnson Johnson

Excellent diversification

The 3 months correlation between Chevron and Johnson is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and Johnson Johnson go up and down completely randomly.

Pair Corralation between Chevron Corp and Johnson Johnson

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.69 times more return on investment than Johnson Johnson. However, Chevron Corp is 1.69 times more volatile than Johnson Johnson. It trades about 0.02 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.03 per unit of risk. If you would invest  14,505  in Chevron Corp on January 17, 2024 and sell it today you would earn a total of  1,254  from holding Chevron Corp or generate 8.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Chevron Corp  vs.  Johnson Johnson

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak 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.

Pair Trading with Chevron Corp and Johnson Johnson

The main advantage of trading using opposite Chevron Corp and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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.

The idea behind Chevron Corp 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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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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.