Correlation Between Johnson Johnson and Eli Lilly
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Eli Lilly 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 Eli Lilly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Eli Lilly and, you can compare the effects of market volatilities on Johnson Johnson and Eli Lilly 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 Eli Lilly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Eli Lilly.
Diversification Opportunities for Johnson Johnson and Eli Lilly
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Johnson and Eli is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Eli Lilly and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eli Lilly 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 Eli Lilly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eli Lilly has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Eli Lilly go up and down completely randomly.
Pair Corralation between Johnson Johnson and Eli Lilly
Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.52 times more return on investment than Eli Lilly. However, Johnson Johnson is 1.92 times less risky than Eli Lilly. It trades about -0.07 of its potential returns per unit of risk. Eli Lilly and is currently generating about -0.05 per unit of risk. If you would invest 16,070 in Johnson Johnson on October 31, 2024 and sell it today you would lose (955.00) from holding Johnson Johnson or give up 5.94% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. Eli Lilly and
Performance |
| Timeline |
| Johnson Johnson |
| Eli Lilly |
Johnson Johnson and Eli Lilly Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Eli Lilly
The main advantage of trading using opposite Johnson Johnson and Eli Lilly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Eli Lilly 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 Eli Lilly will offset losses from the drop in Eli Lilly's long position.| Johnson Johnson vs. Collegium Pharmaceutical | Johnson Johnson vs. Phibro Animal Health | Johnson Johnson vs. ANI Pharmaceuticals | Johnson Johnson vs. Procaps Group SA |
| Eli Lilly vs. Collegium Pharmaceutical | Eli Lilly vs. Phibro Animal Health | Eli Lilly vs. ANI Pharmaceuticals | Eli Lilly vs. Procaps Group SA |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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