Correlation Between Exxon and Johnson Johnson

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

By analyzing existing cross correlation between Exxon Mobil Corp and Johnson Johnson, you can compare the effects of market volatilities on Exxon and Johnson Johnson 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 Exxon with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Johnson Johnson.

Diversification Opportunities for Exxon and Johnson Johnson

-0.57

Correlation Coefficient

Exxon  Johnson Johnson

Excellent diversification

The 3 months correlation between Exxon and Johnson is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Johnson Johnson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Johnson has no effect on the direction of Exxon i.e., Exxon and Johnson Johnson go up and down completely randomly.

Pair Corralation between Exxon and Johnson Johnson

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.3 times more return on investment than Johnson Johnson. However, Exxon is 1.3 times more volatile than Johnson Johnson. It trades about 0.03 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.01 per unit of risk. If you would invest  10,283  in Exxon Mobil Corp on August 31, 2024 and sell it today you would earn a total of  1,513  from holding Exxon Mobil Corp or generate 14.71% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Johnson Johnson

Exxon Mobil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

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 unsteady 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.

Pair Trading with Exxon and Johnson Johnson

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

The idea behind Exxon Mobil Corp and Johnson Johnson 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.