Correlation Between AbbVie and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both AbbVie 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 AbbVie and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AbbVie Inc and Johnson Johnson, you can compare the effects of market volatilities on AbbVie 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 AbbVie with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and Johnson Johnson.
Diversification Opportunities for AbbVie and Johnson Johnson
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between AbbVie and Johnson is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and AbbVie 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 AbbVie 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 AbbVie i.e., AbbVie and Johnson Johnson go up and down completely randomly.
Pair Corralation between AbbVie and Johnson Johnson
Assuming the 90 days trading horizon AbbVie is expected to generate 1.14 times less return on investment than Johnson Johnson. But when comparing it to its historical volatility, AbbVie Inc is 1.27 times less risky than Johnson Johnson. It trades about 0.2 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 291,500 in Johnson Johnson on November 7, 2024 and sell it today you would earn a total of 23,500 from holding Johnson Johnson or generate 8.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
AbbVie Inc vs. Johnson Johnson
Performance |
| Timeline |
| AbbVie Inc |
| Johnson Johnson |
AbbVie and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AbbVie and Johnson Johnson
The main advantage of trading using opposite AbbVie and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AbbVie 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.| AbbVie vs. Applied Materials | AbbVie vs. KB Home | AbbVie vs. Grupo Hotelero Santa | AbbVie vs. New Oriental Education |
| Johnson Johnson vs. Grupo Sports World | Johnson Johnson vs. Grupo Carso SAB | Johnson Johnson vs. New Oriental Education | Johnson Johnson vs. First Majestic Silver |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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