Correlation Between Johnson Johnson and GM

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

Diversification Opportunities for Johnson Johnson and GM

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between Johnson and GM is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and GM go up and down completely randomly.

Pair Corralation between Johnson Johnson and GM

Considering the 90-day investment horizon Johnson Johnson is expected to generate 2.52 times less return on investment than GM. But when comparing it to its historical volatility, Johnson Johnson is 2.52 times less risky than GM. It trades about 0.03 of its potential returns per unit of risk. General Motors is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,969  in General Motors on May 19, 2022 and sell it today you would earn a total of  812.00  from holding General Motors or generate 27.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Johnson Johnson  vs.  General Motors

 Performance (%) 
       Timeline  
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 recent stock price confusion, may contribute to short-horizon losses for the traders.

Johnson Price Channel

General Motors 
GM Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in September 2022.

GM Price Channel

Johnson Johnson and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Johnson Johnson and GM

The main advantage of trading using opposite Johnson Johnson and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
The idea behind Johnson Johnson and General Motors 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.
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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