Correlation Between Nasdaq and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Johnson Johnson, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Johnson Johnson.
Diversification Opportunities for Nasdaq and Johnson Johnson
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Nasdaq and Johnson is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Johnson Johnson go up and down completely randomly.
Pair Corralation between Nasdaq and Johnson Johnson
Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.25 times more return on investment than Johnson Johnson. However, Nasdaq is 1.25 times more volatile than Johnson Johnson. It trades about 0.17 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.03 per unit of risk. If you would invest 4,997 in Nasdaq Inc on September 1, 2024 and sell it today you would earn a total of 3,302 from holding Nasdaq Inc or generate 66.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. Johnson Johnson
Performance |
| Timeline |
| Nasdaq Inc |
| Johnson Johnson |
Nasdaq and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Johnson Johnson
The main advantage of trading using opposite Nasdaq and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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.The idea behind Nasdaq Inc and Johnson Johnson pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Johnson Johnson vs. Crinetics Pharmaceuticals | Johnson Johnson vs. Enanta Pharmaceuticals | Johnson Johnson vs. Amicus Therapeutics | Johnson Johnson vs. Connect Biopharma 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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