Correlation Between Johnson Johnson and Chevron Corp

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

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

Diversification Opportunities for Johnson Johnson and Chevron Corp

-0.86

Correlation Coefficient

Johnson Johnson  Chevron Corp

Pay attention - limited upside

The 3 months correlation between Johnson and Chevron is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Chevron Corp go up and down completely randomly.

Pair Corralation between Johnson Johnson and Chevron Corp

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Chevron Corp. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.51 times less risky than Chevron Corp. The stock trades about -0.11 of its potential returns per unit of risk. The Chevron Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,646  in Chevron Corp on August 30, 2024 and sell it today you would earn a total of  1,565  from holding Chevron Corp or generate 10.69% return on investment over 90 days.

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

Johnson Johnson  vs.  Chevron Corp

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 relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The newest stock price chaos, may contribute to medium-term losses for the stakeholders.

Chevron Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Johnson Johnson and Chevron Corp

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

The idea behind Johnson Johnson and Chevron Corp 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.