Correlation Between Johnson Johnson and Bayer AG
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Bayer AG 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 Bayer AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Bayer AG PK, you can compare the effects of market volatilities on Johnson Johnson and Bayer AG 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 Bayer AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Bayer AG.
Diversification Opportunities for Johnson Johnson and Bayer AG
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Johnson and Bayer is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Bayer AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG PK 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 Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG PK has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Bayer AG go up and down completely randomly.
Pair Corralation between Johnson Johnson and Bayer AG
Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Bayer AG. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.94 times less risky than Bayer AG. The stock trades about -0.01 of its potential returns per unit of risk. The Bayer AG PK is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,451 in Bayer AG PK on August 23, 2024 and sell it today you would earn a total of 235.00 from holding Bayer AG PK or generate 16.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 9.48% |
| Values | Daily Returns |
Johnson Johnson vs. Bayer AG PK
Performance |
| Timeline |
| Johnson Johnson |
| Bayer AG PK |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Johnson Johnson and Bayer AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Bayer AG
The main advantage of trading using opposite Johnson Johnson and Bayer AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Bayer AG 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 Bayer AG will offset losses from the drop in Bayer AG's long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Pfizer Inc | Johnson Johnson vs. Small Cap Core | Johnson Johnson vs. Freedom Holding Corp |
| Bayer AG vs. Novartis AG ADR | Bayer AG vs. Sanofi ADR | Bayer AG vs. AstraZeneca PLC ADR | Bayer AG vs. GlaxoSmithKline PLC ADR |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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