Correlation Between Microsoft and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Johnson Johnson, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Johnson Johnson.
Diversification Opportunities for Microsoft and Johnson Johnson
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Microsoft and Johnson is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Johnson Johnson go up and down completely randomly.
Pair Corralation between Microsoft and Johnson Johnson
Given the investment horizon of 90 days Microsoft is expected to generate 1.31 times more return on investment than Johnson Johnson. However, Microsoft is 1.31 times more volatile than Johnson Johnson. It trades about 0.01 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.01 per unit of risk. If you would invest 41,218 in Microsoft on November 8, 2024 and sell it today you would earn a total of 111.00 from holding Microsoft or generate 0.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Microsoft vs. Johnson Johnson
Performance |
| Timeline |
| Microsoft |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Johnson Johnson |
Microsoft and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Johnson Johnson
The main advantage of trading using opposite Microsoft and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Crowdstrike Holdings | Microsoft vs. Okta Inc | Microsoft vs. Cloudflare | Microsoft vs. MongoDB |
| Johnson Johnson vs. Agilent Technologies | Johnson Johnson vs. Equillium | Johnson Johnson vs. 23Andme Holding Co | Johnson Johnson vs. DiaMedica Therapeutics |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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