Correlation Between Small Cap and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both Small Cap 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 Small Cap and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Core and Johnson Johnson, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Johnson Johnson.
Diversification Opportunities for Small Cap and Johnson Johnson
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Johnson is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Small Cap 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 Small Cap Core 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 Small Cap i.e., Small Cap and Johnson Johnson go up and down completely randomly.
Pair Corralation between Small Cap and Johnson Johnson
Assuming the 90 days horizon Small Cap Core is expected to generate 1.26 times more return on investment than Johnson Johnson. However, Small Cap is 1.26 times more volatile than Johnson Johnson. It trades about 0.05 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.01 per unit of risk. If you would invest 1,124 in Small Cap Core on August 23, 2024 and sell it today you would earn a total of 314.00 from holding Small Cap Core or generate 27.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Small Cap Core vs. Johnson Johnson
Performance |
| Timeline |
| Small Cap Core |
| Johnson Johnson |
Small Cap and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Johnson Johnson
The main advantage of trading using opposite Small Cap and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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.| Small Cap vs. Vanguard Mid Cap Index | Small Cap vs. Vanguard Total Bond | Small Cap vs. Vanguard Institutional Index | Small Cap vs. Vanguard Total International |
| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Pfizer Inc | Johnson Johnson vs. Small Cap Core | Johnson Johnson vs. Freedom Holding Corp |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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