Correlation Between Johnson Johnson and Legend Biotech

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

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

Diversification Opportunities for Johnson Johnson and Legend Biotech

0.47

Correlation Coefficient

Johnson Johnson  Legend Biotech

Very weak diversification

The 3 months correlation between Johnson and Legend is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Legend Biotech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Biotech Corp 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 Legend Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Biotech Corp has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Legend Biotech go up and down completely randomly.

Pair Corralation between Johnson Johnson and Legend Biotech

Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.06 times less return on investment than Legend Biotech. But when comparing it to its historical volatility, Johnson Johnson is 2.79 times less risky than Legend Biotech. It trades about 0.2 of its potential returns per unit of risk. Legend Biotech Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,408  in Legend Biotech Corp on December 20, 2024 and sell it today you would earn a total of  400.00  from holding Legend Biotech Corp or generate 11.74% 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.  Legend Biotech Corp

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 uncertain basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.

Legend Biotech Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legend Biotech Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Legend Biotech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Legend Biotech

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

The idea behind Johnson Johnson and Legend Biotech Corp 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.