Correlation Between Johnson Johnson and Eagle Pharmaceuticals

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

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

Diversification Opportunities for Johnson Johnson and Eagle Pharmaceuticals

0.82

Correlation Coefficient

Johnson Johnson  Eagle Pharmaceuticals

Very poor diversification

The 3 months correlation between Johnson and Eagle is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Eagle Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Pharmaceuticals 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 Eagle Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Pharmaceuticals has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Eagle Pharmaceuticals go up and down completely randomly.

Pair Corralation between Johnson Johnson and Eagle Pharmaceuticals

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.23 times more return on investment than Eagle Pharmaceuticals. However, Johnson Johnson is 4.44 times less risky than Eagle Pharmaceuticals. It trades about -0.11 of its potential returns per unit of risk. Eagle Pharmaceuticals is currently generating about -0.16 per unit of risk. If you would invest  15,950  in Johnson Johnson on February 25, 2024 and sell it today you would lose (1,253) from holding Johnson Johnson or give up 7.86% of portfolio value over 90 days.

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

Johnson Johnson  vs.  Eagle Pharmaceuticals

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.

Eagle Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Johnson Johnson and Eagle Pharmaceuticals

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

The idea behind Johnson Johnson and Eagle Pharmaceuticals 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.