Correlation Between Big 5 and Johnson Johnson

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Can any of the company-specific risk be diversified away by investing in both Big 5 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 Big 5 and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Johnson Johnson, you can compare the effects of market volatilities on Big 5 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 Big 5 with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Johnson Johnson.

Diversification Opportunities for Big 5 and Johnson Johnson

-0.23
  Correlation Coefficient

Very good diversification

The 3 months correlation between Big 5 and Johnson is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Big 5 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 Big 5 Sporting 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 Big 5 i.e., Big 5 and Johnson Johnson go up and down completely randomly.

Pair Corralation between Big 5 and Johnson Johnson

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Johnson Johnson. In addition to that, Big 5 is 1.59 times more volatile than Johnson Johnson. It trades about -0.32 of its total potential returns per unit of risk. Johnson Johnson is currently generating about 0.1 per unit of volatility. If you would invest  16,300  in Johnson Johnson on June 28, 2022 and sell it today you would earn a total of  372.00  from holding Johnson Johnson or generate 2.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Big 5 Sporting  vs.  Johnson Johnson

 Performance (%) 
       Timeline  
Big 5 Sporting 
Big 5 Performance
0 of 100
Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

Johnson Johnson 
Johnson Performance
0 of 100
Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Johnson Johnson is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Johnson Price Channel

Big 5 and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big 5 and Johnson Johnson

The main advantage of trading using opposite Big 5 and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 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.
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The idea behind Big 5 Sporting 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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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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