Correlation Between United States and Johnson Johnson

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

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

Diversification Opportunities for United States and Johnson Johnson

0.85

Correlation Coefficient

United States  Johnson Johnson

Very poor diversification

The 3 months correlation between United and Johnson is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Johnson Johnson Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and United States 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 United States Steel 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 United States i.e., United States and Johnson Johnson go up and down completely randomly.

Pair Corralation between United States and Johnson Johnson

Given the investment horizon of 90 days United States Steel is expected to generate 2.05 times more return on investment than Johnson Johnson. However, United States is 2.05 times more volatile than Johnson Johnson Co. It trades about 0.25 of its potential returns per unit of risk. Johnson Johnson Co is currently generating about 0.28 per unit of risk. If you would invest  1,237,500  in United States Steel on December 29, 2024 and sell it today you would earn a total of  635,000  from holding United States Steel or generate 51.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

United States Steel  vs.  Johnson Johnson Co

United States Steel

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, United States sustained solid returns over the last few months and may actually be approaching a breakup point.

Johnson Johnson

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward-looking indicators, Johnson Johnson sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Johnson Johnson

The main advantage of trading using opposite United States and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.