Correlation Between Johnson Johnson and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for Johnson Johnson and Cumberland Pharmaceuticals

0.62

Correlation Coefficient

Johnson Johnson  Cumberland Pharmaceuticals

Poor diversification

The 3 months correlation between Johnson and Cumberland is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Johnson Johnson and Cumberland Pharmaceuticals

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Cumberland Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 4.96 times less risky than Cumberland Pharmaceuticals. The stock trades about -0.14 of its potential returns per unit of risk. The Cumberland Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  135.00  in Cumberland Pharmaceuticals on September 3, 2024 and sell it today you would earn a total of  5.00  from holding Cumberland Pharmaceuticals or generate 3.7% return on investment over 90 days.

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

Johnson Johnson  vs.  Cumberland Pharmaceuticals

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. Even with latest conflicting performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Cumberland Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Cumberland Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Johnson Johnson and Cumberland Pharmaceuticals

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

The idea behind Johnson Johnson and Cumberland Pharmaceuticals 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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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.