Correlation Between Novartis and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both Novartis 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 Novartis and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and Johnson Johnson, you can compare the effects of market volatilities on Novartis 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 Novartis with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Johnson Johnson.
Diversification Opportunities for Novartis and Johnson Johnson
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Novartis and Johnson is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Novartis 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 Novartis AG 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 Novartis i.e., Novartis and Johnson Johnson go up and down completely randomly.
Pair Corralation between Novartis and Johnson Johnson
Assuming the 90 days trading horizon Novartis is expected to generate 2.45 times less return on investment than Johnson Johnson. But when comparing it to its historical volatility, Novartis AG is 2.68 times less risky than Johnson Johnson. It trades about 0.22 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 290,000 in Johnson Johnson on November 9, 2024 and sell it today you would earn a total of 24,001 from holding Johnson Johnson or generate 8.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. Johnson Johnson
Performance |
| Timeline |
| Novartis AG |
| Johnson Johnson |
Novartis and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Johnson Johnson
The main advantage of trading using opposite Novartis and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis 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.| Novartis vs. KB Home | Novartis vs. United States Steel | Novartis vs. Taiwan Semiconductor Manufacturing | Novartis vs. Micron Technology |
| Johnson Johnson vs. Samsung Electronics Co | Johnson Johnson vs. UnitedHealth Group Incorporated | Johnson Johnson vs. Air Transport Services | Johnson Johnson vs. GMxico Transportes SAB |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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