Correlation Between CVS Health and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both CVS Health 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 CVS Health and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVS Health and Johnson Johnson, you can compare the effects of market volatilities on CVS Health 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 CVS Health with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVS Health and Johnson Johnson.
Diversification Opportunities for CVS Health and Johnson Johnson
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between CVS and Johnson is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and CVS Health 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 CVS Health 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 CVS Health i.e., CVS Health and Johnson Johnson go up and down completely randomly.
Pair Corralation between CVS Health and Johnson Johnson
Assuming the 90 days trading horizon CVS Health is expected to under-perform the Johnson Johnson. In addition to that, CVS Health is 1.54 times more volatile than Johnson Johnson. It trades about -0.03 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.01 per unit of volatility. If you would invest 318,421 in Johnson Johnson on September 3, 2024 and sell it today you would earn a total of 579.00 from holding Johnson Johnson or generate 0.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CVS Health vs. Johnson Johnson
Performance |
| Timeline |
| CVS Health |
| Johnson Johnson |
CVS Health and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CVS Health and Johnson Johnson
The main advantage of trading using opposite CVS Health and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVS Health 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.| CVS Health vs. The Select Sector | CVS Health vs. Promotora y Operadora | CVS Health vs. SPDR Series Trust | CVS Health vs. Vanguard World |
| Johnson Johnson vs. FibraHotel | Johnson Johnson vs. United States Steel | Johnson Johnson vs. Capital One Financial | Johnson Johnson vs. CVS Health |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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