Correlation Between Johnson Johnson and Pimco Long

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

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

Diversification Opportunities for Johnson Johnson and Pimco Long

0.84

Correlation Coefficient

Johnson Johnson  Pimco Long

Very poor diversification

The 3 months correlation between Johnson and Pimco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Pimco Long Term Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Long Term 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 Pimco Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Long Term has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Pimco Long go up and down completely randomly.

Pair Corralation between Johnson Johnson and Pimco Long

Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.56 times more return on investment than Pimco Long. However, Johnson Johnson is 1.56 times more volatile than Pimco Long Term Government. It trades about 0.2 of its potential returns per unit of risk. Pimco Long Term Government is currently generating about 0.11 per unit of risk. If you would invest  14,332  in Johnson Johnson on December 20, 2024 and sell it today you would earn a total of  1,970  from holding Johnson Johnson or generate 13.75% return on investment over 90 days.

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

Johnson Johnson  vs.  Pimco Long Term Government

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

Pimco Long Term

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Long Term Government are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pimco Long 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 Pimco Long

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

The idea behind Johnson Johnson and Pimco Long Term Government 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.