Correlation Between Johnson Johnson and Zai Lab

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

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

Diversification Opportunities for Johnson Johnson and Zai Lab

0.63

Correlation Coefficient

Johnson Johnson  Zai Lab

Poor diversification

The 3 months correlation between Johnson and Zai is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Zai Lab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zai Lab 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 Zai Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zai Lab has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Zai Lab go up and down completely randomly.

Pair Corralation between Johnson Johnson and Zai Lab

Considering the 90-day investment horizon Johnson Johnson is expected to generate 3.83 times less return on investment than Zai Lab. But when comparing it to its historical volatility, Johnson Johnson is 2.29 times less risky than Zai Lab. It trades about 0.05 of its potential returns per unit of risk. Zai Lab is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,615  in Zai Lab on November 19, 2024 and sell it today you would earn a total of  285.00  from holding Zai Lab or generate 10.9% return on investment over 90 days.

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

Johnson Johnson  vs.  Zai Lab

Johnson Johnson

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Zai Lab

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Zai Lab

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

The idea behind Johnson Johnson and Zai Lab 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.