Correlation Between GlaxoSmithKline PLC and Johnson Johnson
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC 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 GlaxoSmithKline PLC and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GlaxoSmithKline PLC ADR and Johnson Johnson, you can compare the effects of market volatilities on GlaxoSmithKline PLC 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 GlaxoSmithKline PLC with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Johnson Johnson.
Diversification Opportunities for GlaxoSmithKline PLC and Johnson Johnson
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between GlaxoSmithKline and Johnson is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Johnson Johnson go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Johnson Johnson
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Johnson Johnson. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.13 times less risky than Johnson Johnson. The stock trades about -0.29 of its potential returns per unit of risk. The Johnson Johnson is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest 15,576 in Johnson Johnson on January 20, 2024 and sell it today you would lose (785.00) from holding Johnson Johnson or give up 5.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Johnson Johnson
Performance |
| Timeline |
| GlaxoSmithKline PLC ADR |
| Johnson Johnson |
GlaxoSmithKline PLC and Johnson Johnson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GlaxoSmithKline PLC and Johnson Johnson
The main advantage of trading using opposite GlaxoSmithKline PLC and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC 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.| GlaxoSmithKline PLC vs. Alkermes Plc | GlaxoSmithKline PLC vs. Ironwood Pharmaceuticals | GlaxoSmithKline PLC vs. Deciphera Pharmaceuticals LLC | GlaxoSmithKline PLC vs. Eagle Pharmaceuticals |
| Johnson Johnson vs. Alkermes Plc | Johnson Johnson vs. Ironwood Pharmaceuticals | Johnson Johnson vs. Deciphera Pharmaceuticals LLC | Johnson Johnson vs. Eagle Pharmaceuticals |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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