Correlation Between Johnson Johnson and Groove Botanicals

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

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

Diversification Opportunities for Johnson Johnson and Groove Botanicals

-0.31

Correlation Coefficient

Johnson Johnson  Groove Botanicals

Very good diversification

The 3 months correlation between Johnson and Groove is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Groove Botanicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Groove Botanicals 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 Groove Botanicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Groove Botanicals has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Groove Botanicals go up and down completely randomly.

Pair Corralation between Johnson Johnson and Groove Botanicals

Considering the 90-day investment horizon Johnson Johnson is expected to generate 21.12 times less return on investment than Groove Botanicals. But when comparing it to its historical volatility, Johnson Johnson is 35.42 times less risky than Groove Botanicals. It trades about 0.19 of its potential returns per unit of risk. Groove Botanicals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.25  in Groove Botanicals on December 22, 2024 and sell it today you would earn a total of  0.35  from holding Groove Botanicals or generate 140.0% return on investment over 90 days.

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

Johnson Johnson  vs.  Groove Botanicals

Johnson Johnson

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.

Groove Botanicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Groove Botanicals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Groove Botanicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Groove Botanicals

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

The idea behind Johnson Johnson and Groove Botanicals 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.