Correlation Between Johnson Johnson and Health Care
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Health Care 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 Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Health Care Select, you can compare the effects of market volatilities on Johnson Johnson and Health Care 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 Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Health Care.
Diversification Opportunities for Johnson Johnson and Health Care
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Johnson and Health is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Health Care go up and down completely randomly.
Pair Corralation between Johnson Johnson and Health Care
Considering the 90-day investment horizon Johnson Johnson is expected to generate 3.31 times less return on investment than Health Care. In addition to that, Johnson Johnson is 1.42 times more volatile than Health Care Select. It trades about 0.01 of its total potential returns per unit of risk. Health Care Select is currently generating about 0.05 per unit of volatility. If you would invest 12,613 in Health Care Select on November 9, 2024 and sell it today you would earn a total of 2,099 from holding Health Care Select or generate 16.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. Health Care Select
Performance |
| Timeline |
| Johnson Johnson |
| Health Care Select |
Johnson Johnson and Health Care Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Health Care
The main advantage of trading using opposite Johnson Johnson and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Coca Cola Consolidated | Johnson Johnson vs. StrikePoint Gold | Johnson Johnson vs. Coca Cola Femsa SAB |
| Health Care vs. Consumer Staples Select | Health Care vs. Industrial Select Sector | Health Care vs. Consumer Discretionary Select | Health Care vs. Utilities Select Sector |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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