Correlation Between Merck and Johnson Johnson

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Merck 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 Merck and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Johnson Johnson, you can compare the effects of market volatilities on Merck 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 Merck with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Johnson Johnson.

Diversification Opportunities for Merck and Johnson Johnson

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Merck and Johnson is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Merck 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 Merck Company 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 Merck i.e., Merck and Johnson Johnson go up and down completely randomly.

Pair Corralation between Merck and Johnson Johnson

Considering the 90-day investment horizon Merck Company is expected to generate 1.88 times more return on investment than Johnson Johnson. However, Merck is 1.88 times more volatile than Johnson Johnson. It trades about 0.1 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.12 per unit of risk. If you would invest  12,822  in Merck Company on December 29, 2023 and sell it today you would earn a total of  353.00  from holding Merck Company or generate 2.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Johnson Johnson

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
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.

Merck and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Johnson Johnson

The main advantage of trading using opposite Merck and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck 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 Merck Company 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

Other Complementary Tools

Funds Screener
Find actively-traded funds from around the world traded on over 30 global exchanges
Stocks Directory
Find actively traded stocks across global markets
Global Markets Map
Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes
Fundamentals Comparison
Compare fundamentals across multiple equities to find investing opportunities
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
AI Investment Finder
Use AI to screen and filter profitable investment opportunities
Bond Analysis
Evaluate and analyze corporate bonds as a potential investment for your portfolios.
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities