Correlation Between Johnson Johnson and LMF Acquisition

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

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

Diversification Opportunities for Johnson Johnson and LMF Acquisition

0.54

Correlation Coefficient

Johnson Johnson  LMF Acquisition

Very weak diversification

The 3 months correlation between Johnson and LMF is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and LMF Acquisition Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LMF Acquisition Oppo 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 LMF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LMF Acquisition Oppo has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and LMF Acquisition go up and down completely randomly.

Pair Corralation between Johnson Johnson and LMF Acquisition

Considering the 90-day investment horizon Johnson Johnson is expected to generate 6.92 times less return on investment than LMF Acquisition. But when comparing it to its historical volatility, Johnson Johnson is 8.2 times less risky than LMF Acquisition. It trades about 0.21 of its potential returns per unit of risk. LMF Acquisition Opportunities is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2.14  in LMF Acquisition Opportunities on December 28, 2024 and sell it today you would earn a total of  2.25  from holding LMF Acquisition Opportunities or generate 105.14% return on investment over 90 days.

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

Johnson Johnson  vs.  LMF Acquisition Opportunities

Johnson Johnson

Risk-Adjusted Performance

Good

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.

LMF Acquisition Oppo

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LMF Acquisition Opportunities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, LMF Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and LMF Acquisition

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

The idea behind Johnson Johnson and LMF Acquisition Opportunities 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.