Correlation Between Lyxor 1 and Johnson Johnson

Can any of the company-specific risk be diversified away by investing in both Lyxor 1 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 Lyxor 1 and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lyxor 1 and Johnson Johnson, you can compare the effects of market volatilities on Lyxor 1 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 Lyxor 1 with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor 1 and Johnson Johnson.

Diversification Opportunities for Lyxor 1 and Johnson Johnson

0.82

Correlation Coefficient

Lyxor 1  Johnson Johnson

Very poor diversification

The 3 months correlation between Lyxor and Johnson is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor 1 and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Lyxor 1 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 Lyxor 1 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 Lyxor 1 i.e., Lyxor 1 and Johnson Johnson go up and down completely randomly.

Pair Corralation between Lyxor 1 and Johnson Johnson

Assuming the 90 days trading horizon Lyxor 1 is expected to generate 0.82 times more return on investment than Johnson Johnson. However, Lyxor 1 is 1.22 times less risky than Johnson Johnson. It trades about 0.18 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.14 per unit of risk. If you would invest  2,495  in Lyxor 1 on December 22, 2024 and sell it today you would earn a total of  282.00  from holding Lyxor 1 or generate 11.3% return on investment over 90 days.

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

Lyxor 1   vs.  Johnson Johnson

Lyxor 1

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor 1 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Lyxor 1 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Johnson Johnson

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile forward-looking indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Lyxor 1 and Johnson Johnson

The main advantage of trading using opposite Lyxor 1 and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor 1 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 Lyxor 1 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.