Correlation Between Johnson Johnson and Biogen

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

By analyzing existing cross correlation between Johnson Johnson and Biogen Inc, you can compare the effects of market volatilities on Johnson Johnson and Biogen 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 Biogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Biogen.

Diversification Opportunities for Johnson Johnson and Biogen

0.62

Correlation Coefficient

Johnson Johnson  Biogen

Poor diversification

The 3 months correlation between Johnson and Biogen is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Biogen go up and down completely randomly.

Pair Corralation between Johnson Johnson and Biogen

Assuming the 90 days trading horizon Johnson Johnson is expected to generate 0.68 times more return on investment than Biogen. However, Johnson Johnson is 1.47 times less risky than Biogen. It trades about -0.32 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.29 per unit of risk. If you would invest  14,712  in Johnson Johnson on September 23, 2024 and sell it today you would lose (818.00) from holding Johnson Johnson or give up 5.56% of portfolio value over 90 days.

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

Johnson Johnson  vs.  Biogen Inc

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 comparatively stable forward-looking indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Biogen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Johnson Johnson and Biogen

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

The idea behind Johnson Johnson and Biogen Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.