Correlation Between Johnson Johnson and Westinghouse Air

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

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

Diversification Opportunities for Johnson Johnson and Westinghouse Air

-0.5

Correlation Coefficient

Johnson Johnson  Westinghouse Air

Very good diversification

The 3 months correlation between Johnson and Westinghouse is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Westinghouse Air go up and down completely randomly.

Pair Corralation between Johnson Johnson and Westinghouse Air

Assuming the 90 days trading horizon Johnson Johnson is expected to under-perform the Westinghouse Air. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.45 times less risky than Westinghouse Air. The stock trades about -0.12 of its potential returns per unit of risk. The Westinghouse Air Brake is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  17,401  in Westinghouse Air Brake on October 25, 2024 and sell it today you would earn a total of  2,464  from holding Westinghouse Air Brake or generate 14.16% return on investment over 90 days.

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

Johnson Johnson  vs.  Westinghouse Air Brake

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.

Westinghouse Air Brake

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Westinghouse Air

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

The idea behind Johnson Johnson and Westinghouse Air Brake 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.