Correlation Between 3M and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both 3M and Johnson Johnson 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 3M and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Johnson Johnson, you can compare the effects of market volatilities on 3M and Johnson Johnson 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 3M with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Johnson Johnson.
Diversification Opportunities for 3M and Johnson Johnson
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between 3M and Johnson is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and 3M 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 3M Company are associated (or correlated) with Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of 3M i.e., 3M and Johnson Johnson go up and down completely randomly.
Pair Corralation between 3M and Johnson Johnson
Considering the 90-day investment horizon 3M Company is expected to generate 2.23 times more return on investment than Johnson Johnson. However, 3M is 2.23 times more volatile than Johnson Johnson. It trades about 0.1 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.02 per unit of risk. If you would invest 7,961 in 3M Company on August 24, 2024 and sell it today you would earn a total of 4,790 from holding 3M Company or generate 60.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Johnson Johnson
Performance |
| Timeline |
| 3M Company |
| Johnson Johnson |
3M and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Johnson Johnson
The main advantage of trading using opposite 3M and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M position performs unexpectedly, Johnson Johnson 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 Johnson Johnson will offset losses from the drop in Johnson Johnson's long position.| 3M vs. MDU Resources Group | 3M vs. Valmont Industries | 3M vs. Griffon | 3M vs. Compass Diversified Holdings |
| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Pfizer Inc | Johnson Johnson vs. Eshallgo Class A | Johnson Johnson vs. Amtech Systems |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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