Correlation Between Johnson Johnson and Merck
Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Johnson and Merck Company, you can compare the effects of market volatilities on Johnson Johnson and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Merck.
Diversification Opportunities for Johnson Johnson and Merck
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Johnson and Merck is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Merck go up and down completely randomly.
Pair Corralation between Johnson Johnson and Merck
Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.28 times less risky than Merck. The stock trades about -0.22 of its potential returns per unit of risk. The Merck Company is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 12,552 in Merck Company on January 26, 2024 and sell it today you would earn a total of 148.00 from holding Merck Company or generate 1.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Johnson vs. Merck Company
Performance |
| Timeline |
| Johnson Johnson |
| Merck Company |
Johnson Johnson and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Johnson and Merck
The main advantage of trading using opposite Johnson Johnson and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Johnson Johnson vs. Merck Company | Johnson Johnson vs. Bristol Myers Squibb | Johnson Johnson vs. Amgen Inc | Johnson Johnson vs. Pfizer Inc |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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