Correlation Between Johnson Johnson and Scandinavian Tobacco

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

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

Diversification Opportunities for Johnson Johnson and Scandinavian Tobacco

0.23

Correlation Coefficient

Johnson Johnson  Scandinavian Tobacco

Modest diversification

The 3 months correlation between Johnson and Scandinavian is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Johnson Johnson 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 Johnson Johnson are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Johnson Johnson and Scandinavian Tobacco

Assuming the 90 days trading horizon Johnson Johnson is expected to under-perform the Scandinavian Tobacco. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.91 times less risky than Scandinavian Tobacco. The stock trades about -0.14 of its potential returns per unit of risk. The Scandinavian Tobacco Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,364  in Scandinavian Tobacco Group on October 24, 2024 and sell it today you would lose (46.00) from holding Scandinavian Tobacco Group or give up 3.37% of portfolio value over 90 days.

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

Johnson Johnson  vs.  Scandinavian Tobacco Group

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. In spite of latest uncertain performance, the Stock's forward-looking indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Scandinavian Tobacco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Johnson Johnson and Scandinavian Tobacco

The main advantage of trading using opposite Johnson Johnson and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Scandinavian Tobacco 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 Scandinavian Tobacco will offset losses from the drop in Scandinavian Tobacco's long position.

The idea behind Johnson Johnson and Scandinavian Tobacco Group 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.