Correlation Between Alfa Financial and Johnson Johnson

Can any of the company-specific risk be diversified away by investing in both Alfa Financial 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 Alfa Financial and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alfa Financial Software and Johnson Johnson, you can compare the effects of market volatilities on Alfa Financial 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 Alfa Financial with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Financial and Johnson Johnson.

Diversification Opportunities for Alfa Financial and Johnson Johnson

-0.43

Correlation Coefficient

Alfa Financial  Johnson Johnson

Very good diversification

The 3 months correlation between Alfa and Johnson is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Johnson Johnson go up and down completely randomly.

Pair Corralation between Alfa Financial and Johnson Johnson

Assuming the 90 days trading horizon Alfa Financial Software is expected to generate 1.93 times more return on investment than Johnson Johnson. However, Alfa Financial is 1.93 times more volatile than Johnson Johnson. It trades about 0.08 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.01 per unit of risk. If you would invest  191.00  in Alfa Financial Software on October 12, 2024 and sell it today you would earn a total of  55.00  from holding Alfa Financial Software or generate 28.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alfa Financial Software  vs.  Johnson Johnson

Alfa Financial Software

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking indicators, Johnson Johnson is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alfa Financial and Johnson Johnson

The main advantage of trading using opposite Alfa Financial and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.