Correlation Between Ford and Johnson Johnson

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Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Johnson Johnson, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Johnson Johnson.

Diversification Opportunities for Ford and Johnson Johnson

-0.47
  Correlation Coefficient

Very good diversification

The 3 months correlation between Ford and Johnson is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Ford 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 Ford Motor 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 Ford i.e., Ford and Johnson Johnson go up and down completely randomly.

Pair Corralation between Ford and Johnson Johnson

Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.92 times more return on investment than Johnson Johnson. However, Ford is 2.92 times more volatile than Johnson Johnson. It trades about 0.2 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.12 per unit of risk. If you would invest  1,200  in Ford Motor on December 29, 2023 and sell it today you would earn a total of  106.00  from holding Ford Motor or generate 8.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  Johnson Johnson

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Johnson Johnson 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Ford and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Johnson Johnson

The main advantage of trading using opposite Ford and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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