Correlation Between Johnson Johnson and Merck
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Merck Company, you can compare the effects of market volatilities on Johnson Johnson and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Merck.
Diversification Opportunities for Johnson Johnson and Merck
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Johnson and Merck is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Merck go up and down completely randomly.
Pair Corralation between Johnson Johnson and Merck
Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.68 times more return on investment than Merck. However, Johnson Johnson is 1.46 times less risky than Merck. It trades about -0.1 of its potential returns per unit of risk. Merck Company is currently generating about -0.2 per unit of risk. If you would invest 16,337 in Johnson Johnson on August 26, 2024 and sell it today you would lose (820.00) from holding Johnson Johnson or give up 5.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. Merck Company
Performance |
| Timeline |
| Johnson Johnson |
| Merck Company |
Johnson Johnson and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Merck
The main advantage of trading using opposite Johnson Johnson and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Johnson Johnson vs. Capricor Therapeutics | Johnson Johnson vs. Soleno Therapeutics | Johnson Johnson vs. Bio Path Holdings | Johnson Johnson vs. Moleculin Biotech |
| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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