Correlation Between Johnson Johnson and Poplar Forest

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

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

Diversification Opportunities for Johnson Johnson and Poplar Forest

0.62

Correlation Coefficient

Johnson Johnson  Poplar Forest

Poor diversification

The 3 months correlation between Johnson and Poplar is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Poplar Forest Nerstone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Poplar Forest Nerstone 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 Poplar Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Poplar Forest Nerstone has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Poplar Forest go up and down completely randomly.

Pair Corralation between Johnson Johnson and Poplar Forest

Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.13 times more return on investment than Poplar Forest. However, Johnson Johnson is 2.13 times more volatile than Poplar Forest Nerstone. It trades about 0.21 of its potential returns per unit of risk. Poplar Forest Nerstone is currently generating about 0.12 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	Significant
Accuracy	98.39%
Values	Daily Returns

Johnson Johnson  vs.  Poplar Forest Nerstone

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.

Poplar Forest Nerstone

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Poplar Forest Nerstone are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Poplar Forest 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 Poplar Forest

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

The idea behind Johnson Johnson and Poplar Forest Nerstone 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.