Correlation Between Johnson Johnson and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Northern Lights 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 Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Northern Lights, you can compare the effects of market volatilities on Johnson Johnson and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Northern Lights.
Diversification Opportunities for Johnson Johnson and Northern Lights
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and Northern is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Northern Lights go up and down completely randomly.
Pair Corralation between Johnson Johnson and Northern Lights
Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.09 times more return on investment than Northern Lights. However, Johnson Johnson is 2.09 times more volatile than Northern Lights. It trades about 0.23 of its potential returns per unit of risk. Northern Lights is currently generating about 0.37 per unit of risk. If you would invest 14,703 in Johnson Johnson on November 18, 2024 and sell it today you would earn a total of 912.00 from holding Johnson Johnson or generate 6.2% 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. Northern Lights
Performance |
| Timeline |
| Johnson Johnson |
| Northern Lights |
Johnson Johnson and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Northern Lights
The main advantage of trading using opposite Johnson Johnson and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Bristol Myers Squibb | Johnson Johnson vs. Amgen Inc | Johnson Johnson vs. Pfizer Inc |
| Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded | Northern Lights vs. Northern Lights |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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