Correlation Between Johnson Johnson and Brookfield Reinsurance

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

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

Diversification Opportunities for Johnson Johnson and Brookfield Reinsurance

-0.69

Correlation Coefficient

Johnson Johnson  Brookfield Reinsurance

Excellent diversification

The 3 months correlation between Johnson and Brookfield is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Brookfield Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Reinsurance 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 Brookfield Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Reinsurance has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Brookfield Reinsurance go up and down completely randomly.

Pair Corralation between Johnson Johnson and Brookfield Reinsurance

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Brookfield Reinsurance. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.93 times less risky than Brookfield Reinsurance. The stock trades about -0.13 of its potential returns per unit of risk. The Brookfield Reinsurance is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,784  in Brookfield Reinsurance on September 2, 2024 and sell it today you would earn a total of  986.00  from holding Brookfield Reinsurance or generate 20.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	76.56%
Values	Daily Returns

Johnson Johnson  vs.  Brookfield Reinsurance

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.

Brookfield Reinsurance

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Brookfield Reinsurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, Brookfield Reinsurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Brookfield Reinsurance

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

The idea behind Johnson Johnson and Brookfield Reinsurance 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.