Correlation Between LPL Financial and Johnson Johnson

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

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

Diversification Opportunities for LPL Financial and Johnson Johnson

-0.33

Correlation Coefficient

LPL Financial  Johnson Johnson

Very good diversification

The 3 months correlation between LPL and Johnson is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding LPL Financial Holdings and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and LPL Financial 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 LPL Financial 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 LPL Financial i.e., LPL Financial and Johnson Johnson go up and down completely randomly.

Pair Corralation between LPL Financial and Johnson Johnson

Assuming the 90 days trading horizon LPL Financial Holdings is expected to under-perform the Johnson Johnson. In addition to that, LPL Financial is 1.36 times more volatile than Johnson Johnson. It trades about -0.07 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.06 per unit of volatility. If you would invest  5,964  in Johnson Johnson on December 24, 2024 and sell it today you would earn a total of  257.00  from holding Johnson Johnson or generate 4.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.61%
Values	Daily Returns

LPL Financial Holdings  vs.  Johnson Johnson

LPL Financial Holdings

Risk-Adjusted Performance

Very Weak

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

Johnson Johnson

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LPL Financial and Johnson Johnson

The main advantage of trading using opposite LPL Financial and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LPL Financial 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 LPL Financial 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.