Correlation Between Johnson Johnson and IShares GNMA

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

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

Diversification Opportunities for Johnson Johnson and IShares GNMA

0.95

Correlation Coefficient

Johnson Johnson  IShares GNMA

Almost no diversification

The 3 months correlation between Johnson and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and iShares GNMA Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares GNMA Bond 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 IShares GNMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares GNMA Bond has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and IShares GNMA go up and down completely randomly.

Pair Corralation between Johnson Johnson and IShares GNMA

Considering the 90-day investment horizon Johnson Johnson is expected to generate 3.18 times more return on investment than IShares GNMA. However, Johnson Johnson is 3.18 times more volatile than iShares GNMA Bond. It trades about 0.21 of its potential returns per unit of risk. iShares GNMA Bond is currently generating about 0.13 per unit of risk. If you would invest  14,220  in Johnson Johnson on December 29, 2024 and sell it today you would earn a total of  2,093  from holding Johnson Johnson or generate 14.72% return on investment over 90 days.

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

Johnson Johnson  vs.  iShares GNMA Bond

Johnson Johnson

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.

iShares GNMA Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares GNMA Bond are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, IShares GNMA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Johnson and IShares GNMA

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

The idea behind Johnson Johnson and iShares GNMA Bond 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.