Correlation Between Medtronic PLC and Johnson Johnson

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Can any of the company-specific risk be diversified away by investing in both Medtronic 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 Medtronic 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 Medtronic PLC and Johnson Johnson, you can compare the effects of market volatilities on Medtronic 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 Medtronic PLC with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medtronic PLC and Johnson Johnson.

Diversification Opportunities for Medtronic PLC and Johnson Johnson

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Medtronic and Johnson is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Medtronic 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 Medtronic PLC 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 Medtronic PLC i.e., Medtronic PLC and Johnson Johnson go up and down completely randomly.

Pair Corralation between Medtronic PLC and Johnson Johnson

Considering the 90-day investment horizon Medtronic PLC is expected to generate 1.19 times less return on investment than Johnson Johnson. But when comparing it to its historical volatility, Medtronic PLC is 1.18 times less risky than Johnson Johnson. It trades about 0.14 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  15,316  in Johnson Johnson on May 6, 2025 and sell it today you would earn a total of  1,788  from holding Johnson Johnson or generate 11.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Medtronic PLC  vs.  Johnson Johnson

 Performance 
       Timeline  
Medtronic PLC 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Medtronic PLC may actually be approaching a critical reversion point that can send shares even higher in September 2025.
Johnson Johnson 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Johnson Johnson may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Medtronic PLC and Johnson Johnson Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Medtronic PLC and Johnson Johnson

The main advantage of trading using opposite Medtronic PLC and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medtronic 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.
The idea behind Medtronic PLC 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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