Correlation Between Johnson Johnson and Pacer Lunt

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

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

Diversification Opportunities for Johnson Johnson and Pacer Lunt

-0.33

Correlation Coefficient

Johnson Johnson  Pacer Lunt

Very good diversification

The 3 months correlation between Johnson and Pacer is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Pacer Lunt MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt MidCap 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt MidCap has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Pacer Lunt go up and down completely randomly.

Pair Corralation between Johnson Johnson and Pacer Lunt

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Pacer Lunt. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.09 times less risky than Pacer Lunt. The stock trades about -0.02 of its potential returns per unit of risk. The Pacer Lunt MidCap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,091  in Pacer Lunt MidCap on October 9, 2024 and sell it today you would earn a total of  1,664  from holding Pacer Lunt MidCap or generate 53.83% 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.  Pacer Lunt MidCap

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Pacer Lunt MidCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt MidCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Pacer Lunt is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Johnson Johnson and Pacer Lunt

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

The idea behind Johnson Johnson and Pacer Lunt MidCap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.