Correlation Between Johnson Johnson and GENERAL

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

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

Diversification Opportunities for Johnson Johnson and GENERAL

0.88

Correlation Coefficient

Johnson Johnson  GENERAL

Very poor diversification

The 3 months correlation between Johnson and GENERAL is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and GENERAL go up and down completely randomly.

Pair Corralation between Johnson Johnson and GENERAL

Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.8 times more return on investment than GENERAL. However, Johnson Johnson is 2.8 times more volatile than GENERAL ELEC CAP. It trades about 0.19 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.41 per unit of risk. If you would invest  14,412  in Johnson Johnson on December 23, 2024 and sell it today you would earn a total of  1,951  from holding Johnson Johnson or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	14.75%
Values	Daily Returns

Johnson Johnson  vs.  GENERAL ELEC CAP

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

Very Strong

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat unsteady basic indicators, GENERAL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Johnson Johnson and GENERAL

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

The idea behind Johnson Johnson and GENERAL ELEC CAP 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.