Correlation Between HealthEquity and Johnson Johnson

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Can any of the company-specific risk be diversified away by investing in both HealthEquity 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 HealthEquity and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HealthEquity and Johnson Johnson, you can compare the effects of market volatilities on HealthEquity 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 HealthEquity with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of HealthEquity and Johnson Johnson.

Diversification Opportunities for HealthEquity and Johnson Johnson

-0.06
  Correlation Coefficient

Good diversification

The 3 months correlation between HealthEquity and Johnson is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding HealthEquity and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and HealthEquity 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 HealthEquity 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 HealthEquity i.e., HealthEquity and Johnson Johnson go up and down completely randomly.

Pair Corralation between HealthEquity and Johnson Johnson

Considering the 90-day investment horizon HealthEquity is expected to generate 2.4 times more return on investment than Johnson Johnson. However, HealthEquity is 2.4 times more volatile than Johnson Johnson. It trades about 0.03 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.01 per unit of risk. If you would invest  6,796  in HealthEquity on December 30, 2023 and sell it today you would earn a total of  1,367  from holding HealthEquity or generate 20.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

HealthEquity  vs.  Johnson Johnson

 Performance 
       Timeline  
HealthEquity 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in HealthEquity are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, HealthEquity showed solid returns over the last few months and may actually be approaching a breakup point.
Johnson Johnson 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Weak
Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

HealthEquity and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with HealthEquity and Johnson Johnson

The main advantage of trading using opposite HealthEquity and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HealthEquity 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 HealthEquity 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.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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