Correlation Between Johnson Johnson and ALLSTATE

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

By analyzing existing cross correlation between Johnson Johnson and ALLSTATE P 42, you can compare the effects of market volatilities on Johnson Johnson and ALLSTATE 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 ALLSTATE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and ALLSTATE.

Diversification Opportunities for Johnson Johnson and ALLSTATE

0.75

Correlation Coefficient

Johnson Johnson  ALLSTATE

Poor diversification

The 3 months correlation between Johnson and ALLSTATE is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and ALLSTATE P 42 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLSTATE P 42 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 ALLSTATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLSTATE P 42 has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and ALLSTATE go up and down completely randomly.

Pair Corralation between Johnson Johnson and ALLSTATE

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the ALLSTATE. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 3.88 times less risky than ALLSTATE. The stock trades about -0.23 of its potential returns per unit of risk. The ALLSTATE P 42 is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  8,205  in ALLSTATE P 42 on October 7, 2024 and sell it today you would lose (463.00) from holding ALLSTATE P 42 or give up 5.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	75.61%
Values	Daily Returns

Johnson Johnson  vs.  ALLSTATE P 42

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 weak 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.

ALLSTATE P 42

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days ALLSTATE P 42 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for ALLSTATE P 42 investors.

Pair Trading with Johnson Johnson and ALLSTATE

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

The idea behind Johnson Johnson and ALLSTATE P 42 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 Anywhere module to track or share privately all of your investments from the convenience of any device.