Correlation Between Johnson Johnson and First Trust

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

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

Diversification Opportunities for Johnson Johnson and First Trust

-0.78

Correlation Coefficient

Johnson Johnson  First Trust

Pay attention - limited upside

The 3 months correlation between Johnson and First is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and First Trust Lunt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Lunt 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Lunt has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and First Trust go up and down completely randomly.

Pair Corralation between Johnson Johnson and First Trust

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the First Trust. In addition to that, Johnson Johnson is 1.05 times more volatile than First Trust Lunt. It trades about -0.25 of its total potential returns per unit of risk. First Trust Lunt is currently generating about -0.18 per unit of volatility. If you would invest  3,392  in First Trust Lunt on September 20, 2024 and sell it today you would lose (123.00) from holding First Trust Lunt or give up 3.63% of portfolio value over 90 days.

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

Johnson Johnson  vs.  First Trust Lunt

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 uncertain 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.

First Trust Lunt

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Lunt are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Johnson Johnson and First Trust

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

The idea behind Johnson Johnson and First Trust Lunt 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.