Can any of the company-specific risk be diversified away by investing in both Kineta and Johnson Johnson 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 Kineta and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kineta Inc and Johnson Johnson, you can compare the effects of market volatilities on Kineta and Johnson Johnson 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 Kineta with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kineta and Johnson Johnson.
Diversification Opportunities for Kineta and Johnson Johnson
The 3 months correlation between Kineta and Johnson is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Kineta Inc and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Kineta 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 Kineta Inc are associated (or correlated) with Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Kineta i.e., Kineta and Johnson Johnson go up and down completely randomly.
Pair Corralation between Kineta and Johnson Johnson
Allowing for the 90-day total investment horizon Kineta Inc is expected to under-perform the Johnson Johnson. In addition to that, Kineta is 7.37 times more volatile than Johnson Johnson. It trades about -0.02 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.02 per unit of volatility. If you would invest 15,392 in Johnson Johnson on September 2, 2023 and sell it today you would earn a total of 74.00 from holding Johnson Johnson or generate 0.48% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Kineta Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Kineta sustained solid returns over the last few months and may actually be approaching a breakup point.
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 newest stock price chaos, may contribute to medium-term losses for the stakeholders.
The main advantage of trading using opposite Kineta and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kineta position performs unexpectedly, Johnson Johnson 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 Johnson Johnson will offset losses from the drop in Johnson Johnson's long position.
The idea behind Kineta Inc and Johnson Johnson 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
Use AI to generate optimal portfolios and find profitable investment opportunities
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions