Correlation Between Johnson Johnson and AbbVie

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

Diversification Opportunities for Johnson Johnson and AbbVie

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Johnson and AbbVie is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Johnson Johnson 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 Johnson Johnson are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and AbbVie go up and down completely randomly.

Pair Corralation between Johnson Johnson and AbbVie

Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.25 times less return on investment than AbbVie. In addition to that, Johnson Johnson is 1.04 times more volatile than AbbVie Inc. It trades about 0.28 of its total potential returns per unit of risk. AbbVie Inc is currently generating about 0.65 per unit of volatility. If you would invest  14,452  in AbbVie Inc on September 3, 2022 and sell it today you would earn a total of  1,914  from holding AbbVie Inc or generate 13.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Johnson Johnson  vs.  AbbVie Inc

 Performance (%) 
       Timeline  
Johnson Johnson 
Johnson Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Johnson Price Channel

AbbVie Inc 
AbbVie Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, AbbVie showed solid returns over the last few months and may actually be approaching a breakup point.

AbbVie Price Channel

Johnson Johnson and AbbVie Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Johnson Johnson and AbbVie

The main advantage of trading using opposite Johnson Johnson and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.
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The idea behind Johnson Johnson and AbbVie Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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