Correlation Between Amazon and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Johnson Johnson, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Johnson Johnson.
Diversification Opportunities for Amazon and Johnson Johnson
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Amazon and Johnson is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Amazon 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 Amazon 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 Amazon i.e., Amazon and Johnson Johnson go up and down completely randomly.
Pair Corralation between Amazon and Johnson Johnson
Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.74 times more return on investment than Johnson Johnson. However, Amazon is 1.74 times more volatile than Johnson Johnson. It trades about 0.07 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.02 per unit of risk. If you would invest 16,008 in Amazon Inc on September 1, 2024 and sell it today you would earn a total of 3,532 from holding Amazon Inc or generate 22.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.48% |
| Values | Daily Returns |
Amazon Inc vs. Johnson Johnson
Performance |
| Timeline |
| Amazon Inc |
| Johnson Johnson |
Amazon and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amazon and Johnson Johnson
The main advantage of trading using opposite Amazon and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.| Amazon vs. MOLSON RS BEVERAGE | Amazon vs. Thai Beverage Public | Amazon vs. Molson Coors Beverage | Amazon vs. PLAY2CHILL SA ZY |
| Johnson Johnson vs. ePlay Digital | Johnson Johnson vs. Playtech plc | Johnson Johnson vs. ANTA SPORTS PRODUCT | Johnson Johnson vs. UNITED RENTALS |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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