Correlation Between Bayer AG and Johnson Johnson

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

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

Diversification Opportunities for Bayer AG and Johnson Johnson

0.37

Correlation Coefficient

Bayer AG  Johnson Johnson

Weak diversification

The 3 months correlation between Bayer and Johnson is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bayer AG NA and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Bayer AG 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 Bayer AG NA 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 Bayer AG i.e., Bayer AG and Johnson Johnson go up and down completely randomly.

Pair Corralation between Bayer AG and Johnson Johnson

Assuming the 90 days trading horizon Bayer AG NA is expected to under-perform the Johnson Johnson. In addition to that, Bayer AG is 2.55 times more volatile than Johnson Johnson. It trades about -0.09 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.02 per unit of volatility. If you would invest  13,585  in Johnson Johnson on September 23, 2024 and sell it today you would earn a total of  309.00  from holding Johnson Johnson or generate 2.27% return on investment over 90 days.

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

Bayer AG NA  vs.  Johnson Johnson

Bayer AG NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG NA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Bayer AG and Johnson Johnson

The main advantage of trading using opposite Bayer AG and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayer AG 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 Bayer AG NA 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.