Correlation Between Johnson Johnson and Red Light

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

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

Diversification Opportunities for Johnson Johnson and Red Light

-0.55

Correlation Coefficient

Johnson Johnson  Red Light

Excellent diversification

The 3 months correlation between Johnson and Red is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Red Light Holland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Light Holland 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 Red Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Light Holland has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Red Light go up and down completely randomly.

Pair Corralation between Johnson Johnson and Red Light

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Red Light. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 8.64 times less risky than Red Light. The stock trades about -0.21 of its potential returns per unit of risk. The Red Light Holland is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2.70  in Red Light Holland on September 19, 2024 and sell it today you would earn a total of  0.00  from holding Red Light Holland or generate 0.0% return on investment over 90 days.

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

Johnson Johnson  vs.  Red Light Holland

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 uncertain 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.

Red Light Holland

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Red Light Holland are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Red Light reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Johnson and Red Light

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

The idea behind Johnson Johnson and Red Light Holland 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.