Correlation Between Johnson Johnson and IShares China

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Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and IShares China 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 IShares China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and iShares China Large Cap, you can compare the effects of market volatilities on Johnson Johnson and IShares China 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 IShares China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and IShares China.

Diversification Opportunities for Johnson Johnson and IShares China

-0.45
  Correlation Coefficient

Very good diversification

The 3 months correlation between Johnson and IShares is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and iShares China Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China Large 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 IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China Large has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and IShares China go up and down completely randomly.

Pair Corralation between Johnson Johnson and IShares China

Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.51 times less return on investment than IShares China. But when comparing it to its historical volatility, Johnson Johnson is 2.43 times less risky than IShares China. It trades about 0.07 of its potential returns per unit of risk. iShares China Large Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,747  in iShares China Large Cap on August 24, 2024 and sell it today you would earn a total of  288.00  from holding iShares China Large Cap or generate 10.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Johnson Johnson  vs.  iShares China Large Cap

 Performance 
       Timeline  
Johnson Johnson 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.
iShares China Large 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large Cap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, IShares China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Johnson Johnson and IShares China Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Johnson Johnson and IShares China

The main advantage of trading using opposite Johnson Johnson and IShares China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, IShares China 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 IShares China will offset losses from the drop in IShares China's long position.
The idea behind Johnson Johnson and iShares China Large Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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