Correlation Between State Street and Johnson Johnson

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

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

Diversification Opportunities for State Street and Johnson Johnson

-0.07

Correlation Coefficient

State Street  Johnson Johnson

Good diversification

The 3 months correlation between State and Johnson is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and State Street 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 State Street 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 State Street i.e., State Street and Johnson Johnson go up and down completely randomly.

Pair Corralation between State Street and Johnson Johnson

Assuming the 90 days trading horizon State Street is expected to generate 0.86 times more return on investment than Johnson Johnson. However, State Street is 1.17 times less risky than Johnson Johnson. It trades about 0.02 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.02 per unit of risk. If you would invest  2,281  in State Street on January 25, 2024 and sell it today you would earn a total of  123.00  from holding State Street or generate 5.39% return on investment over 90 days.

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

State Street  vs.  Johnson Johnson

State Street

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 unsteady 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 State Street and Johnson Johnson

The main advantage of trading using opposite State Street and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.