Correlation Between Johnson Johnson and ProShares UltraPro

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

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

Diversification Opportunities for Johnson Johnson and ProShares UltraPro

0.72

Correlation Coefficient

Johnson Johnson  ProShares UltraPro

Poor diversification

The 3 months correlation between Johnson and ProShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and ProShares UltraPro Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares UltraPro Short 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 ProShares UltraPro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares UltraPro Short has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and ProShares UltraPro go up and down completely randomly.

Pair Corralation between Johnson Johnson and ProShares UltraPro

Considering the 90-day investment horizon Johnson Johnson is expected to generate 1.53 times less return on investment than ProShares UltraPro. But when comparing it to its historical volatility, Johnson Johnson is 2.87 times less risky than ProShares UltraPro. It trades about 0.21 of its potential returns per unit of risk. ProShares UltraPro Short is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  894.00  in ProShares UltraPro Short on December 29, 2024 and sell it today you would earn a total of  185.00  from holding ProShares UltraPro Short or generate 20.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Johnson Johnson  vs.  ProShares UltraPro Short

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.

ProShares UltraPro Short

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraPro Short are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ProShares UltraPro exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and ProShares UltraPro

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

The idea behind Johnson Johnson and ProShares UltraPro Short 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.