Correlation Between Procter Gamble and Johnson Johnson

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

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

Diversification Opportunities for Procter Gamble and Johnson Johnson

0.89

Correlation Coefficient

Procter Gamble  Johnson Johnson

Very poor diversification

The 3 months correlation between Procter and Johnson is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and Johnson Johnson Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Procter Gamble 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 Procter Gamble DRC 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 Procter Gamble i.e., Procter Gamble and Johnson Johnson go up and down completely randomly.

Pair Corralation between Procter Gamble and Johnson Johnson

Assuming the 90 days horizon Procter Gamble DRC is expected to generate 1.17 times more return on investment than Johnson Johnson. However, Procter Gamble is 1.17 times more volatile than Johnson Johnson Co. It trades about -0.23 of its potential returns per unit of risk. Johnson Johnson Co is currently generating about -0.4 per unit of risk. If you would invest  1,472,493  in Procter Gamble DRC on September 14, 2024 and sell it today you would lose (249,993) from holding Procter Gamble DRC or give up 16.98% of portfolio value over 90 days.

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

Procter Gamble DRC  vs.  Johnson Johnson Co

Procter Gamble DRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procter Gamble DRC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward-looking indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Procter Gamble and Johnson Johnson

The main advantage of trading using opposite Procter Gamble and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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 Procter Gamble DRC and Johnson Johnson Co 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.