Correlation Between Johnson Johnson and American Software
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and American Software 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 Johnson Johnson and American Software into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and American Software, you can compare the effects of market volatilities on Johnson Johnson and American Software 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 Johnson Johnson with a short position of American Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and American Software.
Diversification Opportunities for Johnson Johnson and American Software
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Johnson and American is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and American Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Software and Johnson Johnson 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 Johnson Johnson are associated (or correlated) with American Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Software has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and American Software go up and down completely randomly.
Pair Corralation between Johnson Johnson and American Software
Considering the 90-day investment horizon Johnson Johnson is expected to generate 3.64 times less return on investment than American Software. But when comparing it to its historical volatility, Johnson Johnson is 2.21 times less risky than American Software. It trades about 0.02 of its potential returns per unit of risk. American Software is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 961.00 in American Software on August 24, 2024 and sell it today you would earn a total of 116.00 from holding American Software or generate 12.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 85.6% |
| Values | Daily Returns |
Johnson Johnson vs. American Software
Performance |
| Timeline |
| Johnson Johnson |
| American Software |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Johnson Johnson and American Software Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and American Software
The main advantage of trading using opposite Johnson Johnson and American Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, American Software 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 American Software will offset losses from the drop in American Software's long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Pfizer Inc | Johnson Johnson vs. Eshallgo Class A | Johnson Johnson vs. Amtech Systems |
| American Software vs. Paycor HCM | American Software vs. Appfolio | American Software vs. Agilysys | American Software vs. Meridianlink |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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