Correlation Between Johnson Johnson and AETNA

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

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

Diversification Opportunities for Johnson Johnson and AETNA

0.67

Correlation Coefficient

Johnson Johnson  AETNA

Poor diversification

The 3 months correlation between Johnson and AETNA is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and AETNA INC NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AETNA INC NEW 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 AETNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AETNA INC NEW has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and AETNA go up and down completely randomly.

Pair Corralation between Johnson Johnson and AETNA

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the AETNA. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.74 times less risky than AETNA. The stock trades about -0.13 of its potential returns per unit of risk. The AETNA INC NEW is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  11,250  in AETNA INC NEW on September 3, 2024 and sell it today you would lose (610.00) from holding AETNA INC NEW or give up 5.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.63%
Values	Daily Returns

Johnson Johnson  vs.  AETNA INC NEW

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.

AETNA INC NEW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AETNA INC NEW has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AETNA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Johnson and AETNA

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

The idea behind Johnson Johnson and AETNA INC NEW 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.