Correlation Between Summit Hotel and Johnson Johnson

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

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

Diversification Opportunities for Summit Hotel and Johnson Johnson

-0.39

Correlation Coefficient

Summit Hotel  Johnson Johnson

Very good diversification

The 3 months correlation between Summit and Johnson is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Summit Hotel 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 Summit Hotel Properties 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 Summit Hotel i.e., Summit Hotel and Johnson Johnson go up and down completely randomly.

Pair Corralation between Summit Hotel and Johnson Johnson

Assuming the 90 days horizon Summit Hotel Properties is expected to under-perform the Johnson Johnson. In addition to that, Summit Hotel is 1.52 times more volatile than Johnson Johnson. It trades about -0.19 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.11 per unit of volatility. If you would invest  13,711  in Johnson Johnson on December 20, 2024 and sell it today you would earn a total of  1,231  from holding Johnson Johnson or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Summit Hotel Properties  vs.  Johnson Johnson

Summit Hotel Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Summit Hotel Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Johnson Johnson

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Summit Hotel and Johnson Johnson

The main advantage of trading using opposite Summit Hotel and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Hotel 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 Summit Hotel Properties 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.