Correlation Between Johnson Johnson and Phibro Animal

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

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

Diversification Opportunities for Johnson Johnson and Phibro Animal

0.43

Correlation Coefficient

Johnson Johnson  Phibro Animal

Very weak diversification

The 3 months correlation between Johnson and Phibro is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Phibro Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phibro Animal Health 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 Phibro Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phibro Animal Health has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Phibro Animal go up and down completely randomly.

Pair Corralation between Johnson Johnson and Phibro Animal

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.35 times more return on investment than Phibro Animal. However, Johnson Johnson is 2.87 times less risky than Phibro Animal. It trades about 0.21 of its potential returns per unit of risk. Phibro Animal Health is currently generating about 0.03 per unit of risk. If you would invest  14,220  in Johnson Johnson on December 28, 2024 and sell it today you would earn a total of  2,151  from holding Johnson Johnson or generate 15.13% 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.  Phibro Animal Health

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.

Phibro Animal Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Phibro Animal Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Phibro Animal is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Johnson Johnson and Phibro Animal

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

The idea behind Johnson Johnson and Phibro Animal Health 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.