Correlation Between Johnson Johnson and GlaxoSmithKline PLC
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on Johnson Johnson and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and GlaxoSmithKline PLC.
Diversification Opportunities for Johnson Johnson and GlaxoSmithKline PLC
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and GlaxoSmithKline is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and GlaxoSmithKline PLC go up and down completely randomly.
Pair Corralation between Johnson Johnson and GlaxoSmithKline PLC
Considering the 90-day investment horizon Johnson Johnson is expected to generate 3.87 times less return on investment than GlaxoSmithKline PLC. But when comparing it to its historical volatility, Johnson Johnson is 1.54 times less risky than GlaxoSmithKline PLC. It trades about 0.03 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,369 in GlaxoSmithKline PLC ADR on November 18, 2024 and sell it today you would earn a total of 248.00 from holding GlaxoSmithKline PLC ADR or generate 7.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. GlaxoSmithKline PLC ADR
Performance |
| Timeline |
| Johnson Johnson |
| GlaxoSmithKline PLC ADR |
Johnson Johnson and GlaxoSmithKline PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and GlaxoSmithKline PLC
The main advantage of trading using opposite Johnson Johnson and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, GlaxoSmithKline PLC 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 GlaxoSmithKline PLC will offset losses from the drop in GlaxoSmithKline PLC's long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Bristol Myers Squibb | Johnson Johnson vs. Amgen Inc | Johnson Johnson vs. Pfizer Inc |
| GlaxoSmithKline PLC vs. Novartis AG ADR | GlaxoSmithKline PLC vs. AstraZeneca PLC ADR | GlaxoSmithKline PLC vs. Roche Holding Ltd | GlaxoSmithKline PLC vs. Bristol Myers Squibb |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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