Correlation Between Exxon and JOHNSON

Can any of the company-specific risk be diversified away by investing in both Exxon and 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 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 245, you can compare the effects of market volatilities on Exxon and 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and JOHNSON.

Diversification Opportunities for Exxon and JOHNSON

0.14

Correlation Coefficient

Exxon  JOHNSON

Average diversification

The 3 months correlation between Exxon and JOHNSON is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and JOHNSON JOHNSON 245 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JOHNSON JOHNSON 245 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. 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 245 has no effect on the direction of Exxon i.e., Exxon and JOHNSON go up and down completely randomly.

Pair Corralation between Exxon and JOHNSON

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 2.23 times more return on investment than JOHNSON. However, Exxon is 2.23 times more volatile than JOHNSON JOHNSON 245. It trades about 0.03 of its potential returns per unit of risk. JOHNSON JOHNSON 245 is currently generating about -0.01 per unit of risk. If you would invest  11,032  in Exxon Mobil Corp on September 12, 2024 and sell it today you would earn a total of  235.00  from holding Exxon Mobil Corp or generate 2.13% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  JOHNSON JOHNSON 245

Exxon Mobil Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 2 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

JOHNSON JOHNSON 245

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JOHNSON JOHNSON 245 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, JOHNSON is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Exxon and JOHNSON

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

The idea behind Exxon Mobil Corp and JOHNSON JOHNSON 245 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.