Correlation Between Exelon and Johnson Johnson

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

Diversification Opportunities for Exelon and Johnson Johnson

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between Exelon and Johnson is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Exelon and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Exelon 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 Exelon 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 Exelon i.e., Exelon and Johnson Johnson go up and down completely randomly.

Pair Corralation between Exelon and Johnson Johnson

Considering the 90-day investment horizon Exelon is expected to generate 1.39 times more return on investment than Johnson Johnson. However, Exelon is 1.39 times more volatile than Johnson Johnson. It trades about 0.06 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.05 per unit of risk. If you would invest  2,836  in Exelon on September 7, 2022 and sell it today you would earn a total of  1,416  from holding Exelon or generate 49.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Exelon  vs.  Johnson Johnson

 Performance (%) 
       Timeline  
Exelon 
Exelon Performance
0 of 100
Over the last 90 days Exelon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Exelon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Exelon Price Channel

Johnson Johnson 
Johnson Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Johnson Price Channel

Exelon and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exelon and Johnson Johnson

The main advantage of trading using opposite Exelon and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exelon 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 Exelon 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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