Correlation Between Johnson Johnson and Medtronic PLC
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Medtronic 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 Medtronic 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 Medtronic PLC, you can compare the effects of market volatilities on Johnson Johnson and Medtronic 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 Medtronic PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Medtronic PLC.
Diversification Opportunities for Johnson Johnson and Medtronic PLC
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and Medtronic is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC 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 Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Medtronic PLC go up and down completely randomly.
Pair Corralation between Johnson Johnson and Medtronic PLC
Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.03 times less return on investment than Medtronic PLC. But when comparing it to its historical volatility, Johnson Johnson is 1.2 times less risky than Medtronic PLC. It trades about 0.06 of its potential returns per unit of risk. Medtronic PLC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 8,076 in Medtronic PLC on August 30, 2024 and sell it today you would earn a total of 551.00 from holding Medtronic PLC or generate 6.82% 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. Medtronic PLC
Performance |
| Timeline |
| Johnson Johnson |
| Medtronic PLC |
Johnson Johnson and Medtronic PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Medtronic PLC
The main advantage of trading using opposite Johnson Johnson and Medtronic PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Medtronic 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 Medtronic PLC will offset losses from the drop in Medtronic PLC's long position.| Johnson Johnson vs. Emergent Biosolutions | Johnson Johnson vs. Bausch Health Companies | Johnson Johnson vs. Neurocrine Biosciences | Johnson Johnson vs. Teva Pharma Industries |
| Medtronic PLC vs. Edwards Lifesciences Corp | Medtronic PLC vs. Abbott Laboratories | Medtronic PLC vs. Boston Scientific Corp | Medtronic PLC vs. Zimmer Biomet Holdings |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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