Correlation Between Johnson Johnson and Dreyfus Natural

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

By analyzing existing cross correlation between Johnson Johnson and Dreyfus Natural Resources, you can compare the effects of market volatilities on Johnson Johnson and Dreyfus Natural 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 Dreyfus Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Dreyfus Natural.

Diversification Opportunities for Johnson Johnson and Dreyfus Natural

-0.77

Correlation Coefficient

Johnson Johnson  Dreyfus Natural

Pay attention - limited upside

The 3 months correlation between Johnson and Dreyfus is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Dreyfus Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Natural Resources 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 Dreyfus Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Natural Resources has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Dreyfus Natural go up and down completely randomly.

Pair Corralation between Johnson Johnson and Dreyfus Natural

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.9 times more return on investment than Dreyfus Natural. However, Johnson Johnson is 1.12 times less risky than Dreyfus Natural. It trades about 0.13 of its potential returns per unit of risk. Dreyfus Natural Resources is currently generating about 0.07 per unit of risk. If you would invest  14,836  in Johnson Johnson on February 23, 2024 and sell it today you would earn a total of  514.00  from holding Johnson Johnson or generate 3.46% return on investment over 90 days.

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

Johnson Johnson  vs.  Dreyfus Natural Resources

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 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.

Dreyfus Natural Resources

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Natural Resources are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dreyfus Natural showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Dreyfus Natural

The main advantage of trading using opposite Johnson Johnson and Dreyfus Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Dreyfus Natural 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 Dreyfus Natural will offset losses from the drop in Dreyfus Natural's long position.

The idea behind Johnson Johnson and Dreyfus Natural Resources 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.