Correlation Between Johnson Johnson and EuroDry

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

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

Diversification Opportunities for Johnson Johnson and EuroDry

0.57

Correlation Coefficient

Johnson Johnson  EuroDry

Very weak diversification

The 3 months correlation between Johnson and EuroDry is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry 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 EuroDry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuroDry has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and EuroDry go up and down completely randomly.

Pair Corralation between Johnson Johnson and EuroDry

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.42 times more return on investment than EuroDry. However, Johnson Johnson is 2.41 times less risky than EuroDry. It trades about -0.02 of its potential returns per unit of risk. EuroDry is currently generating about -0.02 per unit of risk. If you would invest  16,897  in Johnson Johnson on January 25, 2024 and sell it today you would lose (2,034) from holding Johnson Johnson or give up 12.04% of portfolio value over 90 days.

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

Johnson Johnson  vs.  EuroDry

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 latest stock price chaos, may contribute to medium-term losses for the stakeholders.

EuroDry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuroDry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, EuroDry is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Johnson and EuroDry

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

The idea behind Johnson Johnson and EuroDry 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.