Correlation Between Johnson Johnson and 06406YAA0

Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and 06406YAA0 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 06406YAA0 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 NEW YORK, you can compare the effects of market volatilities on Johnson Johnson and 06406YAA0 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 06406YAA0. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and 06406YAA0.

Diversification Opportunities for Johnson Johnson and 06406YAA0

0.64

Correlation Coefficient

Johnson Johnson  06406YAA0

Poor diversification

The 3 months correlation between Johnson and 06406YAA0 is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and BANK NEW YORK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK NEW YORK 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 06406YAA0. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK NEW YORK has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and 06406YAA0 go up and down completely randomly.

Pair Corralation between Johnson Johnson and 06406YAA0

Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.24 times more return on investment than 06406YAA0. However, Johnson Johnson is 1.24 times more volatile than BANK NEW YORK. It trades about -0.06 of its potential returns per unit of risk. BANK NEW YORK is currently generating about -0.25 per unit of risk. If you would invest  15,239  in Johnson Johnson on February 5, 2024 and sell it today you would lose (312.00) from holding Johnson Johnson or give up 2.05% of portfolio value over 90 days.

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

Johnson Johnson  vs.  BANK NEW YORK

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.

BANK NEW YORK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK NEW YORK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 06406YAA0 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Johnson and 06406YAA0

The main advantage of trading using opposite Johnson Johnson and 06406YAA0 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, 06406YAA0 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 06406YAA0 will offset losses from the drop in 06406YAA0's long position.

The idea behind Johnson Johnson and BANK NEW YORK 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.