Correlation Between Johnson Johnson and Bank of America
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Bank of America, you can compare the effects of market volatilities on Johnson Johnson and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Bank of America.
Diversification Opportunities for Johnson Johnson and Bank of America
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Johnson and Bank is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Bank of America go up and down completely randomly.
Pair Corralation between Johnson Johnson and Bank of America
Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Bank of America. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.32 times less risky than Bank of America. The stock trades about -0.06 of its potential returns per unit of risk. The Bank of America is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3,338 in Bank of America on February 12, 2024 and sell it today you would earn a total of 507.00 from holding Bank of America or generate 15.19% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Johnson Johnson vs. Bank of America
Performance |
Timeline |
Johnson Johnson |
Bank of America |
Johnson Johnson and Bank of America Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Johnson Johnson and Bank of America
The main advantage of trading using opposite Johnson Johnson and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.Johnson Johnson vs. Dell Technologies | Johnson Johnson vs. MIRA Pharmaceuticals Common | Johnson Johnson vs. Planet Fitness | Johnson Johnson vs. VanEck Pharmaceutical ETF |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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