Correlation Between Capital One and Johnson Johnson

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

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

Diversification Opportunities for Capital One and Johnson Johnson

-0.45

Correlation Coefficient

Capital One  Johnson Johnson

Very good diversification

The 3 months correlation between Capital and Johnson is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Johnson Johnson go up and down completely randomly.

Pair Corralation between Capital One and Johnson Johnson

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Johnson Johnson. In addition to that, Capital One is 1.43 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 0.07 per unit of volatility. If you would invest  5,964  in Johnson Johnson on December 25, 2024 and sell it today you would earn a total of  317.00  from holding Johnson Johnson or generate 5.32% return on investment over 90 days.

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

Capital One Financial  vs.  Johnson Johnson

Capital One Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Johnson Johnson

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, Johnson Johnson is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital One and Johnson Johnson

The main advantage of trading using opposite Capital One and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.