Correlation Between Disney and Johnson Johnson

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

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

Diversification Opportunities for Disney and Johnson Johnson

-0.51

Correlation Coefficient

Disney  Johnson Johnson

Excellent diversification

The 3 months correlation between Disney and Johnson is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Walt Disney and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Disney 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 Walt Disney 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 Disney i.e., Disney and Johnson Johnson go up and down completely randomly.

Pair Corralation between Disney and Johnson Johnson

Considering the 90-day investment horizon Walt Disney is expected to under-perform the Johnson Johnson. In addition to that, Disney is 1.24 times more volatile than Johnson Johnson. It trades about -0.13 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.19 per unit of volatility. If you would invest  14,442  in Johnson Johnson on December 25, 2024 and sell it today you would earn a total of  1,887  from holding Johnson Johnson or generate 13.07% return on investment over 90 days.

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

Walt Disney  vs.  Johnson Johnson

Walt Disney

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walt Disney has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Johnson Johnson

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Johnson Johnson

The main advantage of trading using opposite Disney and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 Walt Disney 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.