Correlation Between Innovator IBD and Johnson Johnson

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

By analyzing existing cross correlation between Innovator IBD 50 and Johnson Johnson, you can compare the effects of market volatilities on Innovator IBD 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 Innovator IBD with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovator IBD and Johnson Johnson.

Diversification Opportunities for Innovator IBD and Johnson Johnson

-0.59

Correlation Coefficient

Innovator IBD  Johnson Johnson

Excellent diversification

The 3 months correlation between Innovator and Johnson is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Innovator IBD 50 and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Innovator IBD 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 Innovator IBD 50 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 Innovator IBD i.e., Innovator IBD and Johnson Johnson go up and down completely randomly.

Pair Corralation between Innovator IBD and Johnson Johnson

Given the investment horizon of 90 days Innovator IBD 50 is expected to generate 2.44 times more return on investment than Johnson Johnson. However, Innovator IBD is 2.44 times more volatile than Johnson Johnson. It trades about 0.05 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.23 per unit of risk. If you would invest  2,892  in Innovator IBD 50 on October 7, 2024 and sell it today you would earn a total of  101.00  from holding Innovator IBD 50 or generate 3.49% return on investment over 90 days.

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

Innovator IBD 50  vs.  Johnson Johnson

Innovator IBD 50

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator IBD 50 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Innovator IBD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 weak 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 Innovator IBD and Johnson Johnson

The main advantage of trading using opposite Innovator IBD and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovator IBD 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 Innovator IBD 50 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.