Correlation Between Plumb Balanced and Johnson Johnson

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

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

Diversification Opportunities for Plumb Balanced and Johnson Johnson

-0.21

Correlation Coefficient

Plumb Balanced  Johnson Johnson

Very good diversification

The 3 months correlation between Plumb and Johnson is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Plumb Balanced and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Plumb Balanced 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 Plumb Balanced 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 Plumb Balanced i.e., Plumb Balanced and Johnson Johnson go up and down completely randomly.

Pair Corralation between Plumb Balanced and Johnson Johnson

Assuming the 90 days horizon Plumb Balanced is expected to generate 0.66 times more return on investment than Johnson Johnson. However, Plumb Balanced is 1.51 times less risky than Johnson Johnson. It trades about -0.19 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.2 per unit of risk. If you would invest  3,780  in Plumb Balanced on January 25, 2024 and sell it today you would lose (104.00) from holding Plumb Balanced or give up 2.75% of portfolio value over 90 days.

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

Plumb Balanced  vs.  Johnson Johnson

Plumb Balanced

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plumb Balanced are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Plumb Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 conflicting 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.

Pair Trading with Plumb Balanced and Johnson Johnson

The main advantage of trading using opposite Plumb Balanced and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plumb Balanced 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 Plumb Balanced 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.