Correlation Between ESSA Pharma and Johnson Johnson

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

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

Diversification Opportunities for ESSA Pharma and Johnson Johnson

0.83

Correlation Coefficient

ESSA Pharma  Johnson Johnson

Very poor diversification

The 3 months correlation between ESSA and Johnson is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma i.e., ESSA Pharma and Johnson Johnson go up and down completely randomly.

Pair Corralation between ESSA Pharma and Johnson Johnson

Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the Johnson Johnson. In addition to that, ESSA Pharma is 1.28 times more volatile than Johnson Johnson. It trades about -0.56 of its total potential returns per unit of risk. Johnson Johnson is currently generating about -0.34 per unit of volatility. If you would invest  15,393  in Johnson Johnson on September 23, 2024 and sell it today you would lose (946.00) from holding Johnson Johnson or give up 6.15% of portfolio value over 90 days.

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

ESSA Pharma  vs.  Johnson Johnson

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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. Even with latest unsteady performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Pair Trading with ESSA Pharma and Johnson Johnson

The main advantage of trading using opposite ESSA Pharma and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Pharma 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 ESSA Pharma 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.