Correlation Between Nestle SA and Johnson Johnson

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

Diversification Opportunities for Nestle SA and Johnson Johnson

0.1
  Correlation Coefficient

Average diversification

The 3 months correlation between Nestle and Johnson is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Nestle SA and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Nestle SA 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 Nestle SA 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 Nestle SA i.e., Nestle SA and Johnson Johnson go up and down completely randomly.

Pair Corralation between Nestle SA and Johnson Johnson

Assuming the 90 days horizon Nestle SA is expected to generate 1.24 times more return on investment than Johnson Johnson. However, Nestle SA is 1.24 times more volatile than Johnson Johnson. It trades about -0.06 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.12 per unit of risk. If you would invest  10,683  in Nestle SA on December 29, 2023 and sell it today you would lose (137.00) from holding Nestle SA or give up 1.28% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Nestle SA  vs.  Johnson Johnson

 Performance 
       Timeline  
Nestle SA 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Nestle SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Johnson Johnson 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
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.

Nestle SA and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nestle SA and Johnson Johnson

The main advantage of trading using opposite Nestle SA and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nestle SA 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 Nestle SA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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