Correlation Between Johnson Johnson and First Community

Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and First Community 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 Community 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 Community Financial, you can compare the effects of market volatilities on Johnson Johnson and First Community 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 Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and First Community.

Diversification Opportunities for Johnson Johnson and First Community

0.75

Correlation Coefficient

Johnson Johnson  First Community

Poor diversification

The 3 months correlation between Johnson and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and First Community Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Financial 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Financial has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and First Community go up and down completely randomly.

Pair Corralation between Johnson Johnson and First Community

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.27 times more return on investment than First Community. However, Johnson Johnson is 3.68 times less risky than First Community. It trades about -0.14 of its potential returns per unit of risk. First Community Financial is currently generating about -0.15 per unit of risk. If you would invest  15,933  in Johnson Johnson on August 31, 2024 and sell it today you would lose (393.00) from holding Johnson Johnson or give up 2.47% of portfolio value over 90 days.

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

Johnson Johnson  vs.  First Community Financial

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 unsteady 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 Community Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Johnson Johnson and First Community

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

The idea behind Johnson Johnson and First Community Financial 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 Transaction History module to view history of all your transactions and understand their impact on performance.