Correlation Between Johnson Johnson and Johnson Electric

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

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

Diversification Opportunities for Johnson Johnson and Johnson Electric

0.75

Correlation Coefficient

Johnson Johnson  Johnson Electric

Poor diversification

The 3 months correlation between Johnson and Johnson is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Johnson Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Electric Holdings 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 Johnson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Electric Holdings has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Johnson Electric go up and down completely randomly.

Pair Corralation between Johnson Johnson and Johnson Electric

Assuming the 90 days trading horizon Johnson Johnson is expected to generate 5.02 times less return on investment than Johnson Electric. But when comparing it to its historical volatility, Johnson Johnson is 3.62 times less risky than Johnson Electric. It trades about 0.12 of its potential returns per unit of risk. Johnson Electric Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  134.00  in Johnson Electric Holdings on December 25, 2024 and sell it today you would earn a total of  66.00  from holding Johnson Electric Holdings or generate 49.25% return on investment over 90 days.

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

Johnson Johnson  vs.  Johnson Electric Holdings

Johnson Johnson

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward-looking indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Johnson Electric Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Johnson Electric

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

The idea behind Johnson Johnson and Johnson Electric Holdings 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.