Correlation Between American Express and Johnson Johnson

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

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

Diversification Opportunities for American Express and Johnson Johnson

-0.63

Correlation Coefficient

American Express  Johnson Johnson

Excellent diversification

The 3 months correlation between American and Johnson is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and American Express 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 American Express 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 American Express i.e., American Express and Johnson Johnson go up and down completely randomly.

Pair Corralation between American Express and Johnson Johnson

Considering the 90-day investment horizon American Express is expected to under-perform the Johnson Johnson. In addition to that, American Express is 1.49 times more volatile than Johnson Johnson. It trades about -0.08 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.21 per unit of volatility. If you would invest  14,220  in Johnson Johnson on December 29, 2024 and sell it today you would earn a total of  2,093  from holding Johnson Johnson or generate 14.72% return on investment over 90 days.

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

American Express  vs.  Johnson Johnson

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Johnson Johnson

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Johnson Johnson

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

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.