Correlation Between Johnson Johnson and Xilio Development

Can any of the company-specific risk be diversified away by investing in both Johnson Johnson and Xilio Development 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 Xilio Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Johnson Johnson and Xilio Development, you can compare the effects of market volatilities on Johnson Johnson and Xilio Development 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 Xilio Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Johnson and Xilio Development.

Diversification Opportunities for Johnson Johnson and Xilio Development

-0.6

Correlation Coefficient

Johnson Johnson  Xilio Development

Excellent diversification

The 3 months correlation between Johnson and Xilio is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Xilio Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilio Development 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 Xilio Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilio Development has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Xilio Development go up and down completely randomly.

Pair Corralation between Johnson Johnson and Xilio Development

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.17 times more return on investment than Xilio Development. However, Johnson Johnson is 5.9 times less risky than Xilio Development. It trades about -0.07 of its potential returns per unit of risk. Xilio Development is currently generating about -0.03 per unit of risk. If you would invest  16,615  in Johnson Johnson on July 20, 2024 and sell it today you would lose (168.00) from holding Johnson Johnson or give up 1.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Johnson Johnson  vs.  Xilio Development

Johnson Johnson

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Xilio Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xilio Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in November 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Johnson Johnson and Xilio Development

The main advantage of trading using opposite Johnson Johnson and Xilio Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Johnson position performs unexpectedly, Xilio Development 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 Xilio Development will offset losses from the drop in Xilio Development's long position.

The idea behind Johnson Johnson and Xilio Development 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.