Correlation Between Johnson Johnson and Bayer Aktiengesellscha

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

By analyzing existing cross correlation between Johnson Johnson and Bayer Aktiengesellschaft, you can compare the effects of market volatilities on Johnson Johnson and Bayer Aktiengesellscha 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 Bayer Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Bayer Aktiengesellscha.

Diversification Opportunities for Johnson Johnson and Bayer Aktiengesellscha

0.2

Correlation Coefficient

Johnson Johnson  Bayer Aktiengesellscha

Modest diversification

The 3 months correlation between Johnson and Bayer is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Bayer Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer Aktiengesellschaft 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 Bayer Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer Aktiengesellschaft has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Bayer Aktiengesellscha go up and down completely randomly.

Pair Corralation between Johnson Johnson and Bayer Aktiengesellscha

Assuming the 90 days horizon Johnson Johnson is expected to generate 0.23 times more return on investment than Bayer Aktiengesellscha. However, Johnson Johnson is 4.35 times less risky than Bayer Aktiengesellscha. It trades about -0.07 of its potential returns per unit of risk. Bayer Aktiengesellschaft is currently generating about -0.11 per unit of risk. If you would invest  14,837  in Johnson Johnson on September 13, 2024 and sell it today you would lose (611.00) from holding Johnson Johnson or give up 4.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Johnson Johnson  vs.  Bayer Aktiengesellschaft

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bayer Aktiengesellschaft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Johnson Johnson and Bayer Aktiengesellscha

The main advantage of trading using opposite Johnson Johnson and Bayer Aktiengesellscha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Bayer Aktiengesellscha 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 Bayer Aktiengesellscha will offset losses from the drop in Bayer Aktiengesellscha's long position.

The idea behind Johnson Johnson and Bayer Aktiengesellschaft 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 the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.