Correlation Between Johnson Electric and Johnson Johnson

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

By analyzing existing cross correlation between Johnson Electric Holdings and Johnson Johnson, you can compare the effects of market volatilities on Johnson Electric and Johnson Johnson 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 Electric with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Electric and Johnson Johnson.

Diversification Opportunities for Johnson Electric and Johnson Johnson

-0.84

Correlation Coefficient

Johnson Electric  Johnson Johnson

Pay attention - limited upside

The 3 months correlation between Johnson and Johnson is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Electric Holdings and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Johnson Electric 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 Electric Holdings are associated (or correlated) with Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Johnson Electric i.e., Johnson Electric and Johnson Johnson go up and down completely randomly.

Pair Corralation between Johnson Electric and Johnson Johnson

Assuming the 90 days trading horizon Johnson Electric Holdings is expected to generate 2.45 times more return on investment than Johnson Johnson. However, Johnson Electric is 2.45 times more volatile than Johnson Johnson. It trades about 0.13 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.08 per unit of risk. If you would invest  111.00  in Johnson Electric Holdings on October 22, 2024 and sell it today you would earn a total of  20.00  from holding Johnson Electric Holdings or generate 18.02% return on investment over 90 days.

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

Johnson Electric Holdings  vs.  Johnson Johnson

Johnson Electric Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of comparatively stable forward-looking indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Johnson Electric and Johnson Johnson

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

The idea behind Johnson Electric Holdings and Johnson Johnson 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.