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Pair CorrelationComparison
Can any of the company-specific risk be diversified away by investing in both Procter Gamble 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 Procter Gamble and Johnson Johnson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Procter Gamble and Johnson Johnson, you can compare the effects of market volatilities on Procter Gamble 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 Procter Gamble with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Johnson Johnson.
Diversification Opportunities for Procter Gamble and Johnson Johnson
0.79 | Correlation Coefficient | Procter Gamble Johnson Johnson |
Poor diversification
The 3 months correlation between Procter and Johnson is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Procter Gamble 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 Procter Gamble 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 Procter Gamble i.e., Procter Gamble and Johnson Johnson go up and down completely randomly.
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Pair Corralation between Procter Gamble and Johnson Johnson
Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 1.0 times more return on investment than Johnson Johnson. However, Procter Gamble is 1.0 times less risky than Johnson Johnson. It trades about 0.08 of its potential returns per unit of risk. Johnson Johnson is currently generating about 0.06 per unit of risk. If you would invest 14,857 in Procter Gamble on June 20, 2024 and sell it today you would earn a total of 2,535 from holding Procter Gamble or generate 17.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Procter Gamblevs.Johnson Johnson
Performance
| Timeline |
| Procter Gamble | Correlation | Profile |
Risk-Adjusted Performance
6 of 100
Weak | Strong |
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
...more
Performance | Backtest | Predict |
| Johnson Johnson | Correlation | Profile |
Risk-Adjusted Performance
14 of 100
Weak | Strong |
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Johnson are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Johnson Johnson revealed solid returns over the last few months and may actually be approaching a breakup point.
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Performance | Backtest | Predict |
Procter Gamble and Johnson Johnson Volatility Contrast
Predicted Return Density
| Returns |
Pair Trading with Procter Gamble and Johnson Johnson
The main advantage of trading using opposite Procter Gamble and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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.
| Procter Gamble vs. Unilever PLC ADR | Procter Gamble vs. Kimberly Clark | Procter Gamble vs. Estee Lauder Companies | Procter Gamble vs. ELF Beauty |
The idea behind Procter Gamble 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.
| Johnson Johnson vs. PetIQ Inc | Johnson Johnson vs. Emergent Biosolutions | Johnson Johnson vs. Neurocrine Biosciences | Johnson Johnson vs. Haleon plc |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
Other Complementary Tools
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Fundamental Analysis View fundamental data based on most recent published financial statements |
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