Correlation Between Johnson Johnson and Eton Pharmaceuticals

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

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

Diversification Opportunities for Johnson Johnson and Eton Pharmaceuticals

0.27

Correlation Coefficient

Johnson Johnson  Eton Pharmaceuticals

Modest diversification

The 3 months correlation between Johnson and Eton is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals 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 Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between Johnson Johnson and Eton Pharmaceuticals

Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.15 times less return on investment than Eton Pharmaceuticals. But when comparing it to its historical volatility, Johnson Johnson is 4.09 times less risky than Eton Pharmaceuticals. It trades about 0.12 of its potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,353  in Eton Pharmaceuticals on November 29, 2024 and sell it today you would earn a total of  153.00  from holding Eton Pharmaceuticals or generate 11.31% return on investment over 90 days.

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

Johnson Johnson  vs.  Eton Pharmaceuticals

Johnson Johnson

Risk-Adjusted Performance

Modest

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. Even with relatively conflicting basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Eton Pharmaceuticals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Eton Pharmaceuticals

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

The idea behind Johnson Johnson and Eton Pharmaceuticals 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.

Check out your portfolio center.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.