Correlation Between Johnson Johnson and Rheinmetall

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

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

Diversification Opportunities for Johnson Johnson and Rheinmetall

-0.73

Correlation Coefficient

Johnson Johnson  Rheinmetall

Pay attention - limited upside

The 3 months correlation between Johnson and Rheinmetall is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Rheinmetall go up and down completely randomly.

Pair Corralation between Johnson Johnson and Rheinmetall

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Rheinmetall. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 4.0 times less risky than Rheinmetall. The stock trades about -0.23 of its potential returns per unit of risk. The Rheinmetall AG is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  57,500  in Rheinmetall AG on September 13, 2024 and sell it today you would earn a total of  6,100  from holding Rheinmetall AG or generate 10.61% return on investment over 90 days.

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

Johnson Johnson  vs.  Rheinmetall AG

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 uncertain 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.

Rheinmetall AG

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, Rheinmetall reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Rheinmetall

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

The idea behind Johnson Johnson and Rheinmetall AG 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.