Correlation Between Gilead Sciences and Johnson Johnson

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

By analyzing existing cross correlation between Gilead Sciences and Johnson Johnson, you can compare the effects of market volatilities on Gilead Sciences 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 Gilead Sciences with a short position of Johnson Johnson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gilead Sciences and Johnson Johnson.

Diversification Opportunities for Gilead Sciences and Johnson Johnson

0.75

Correlation Coefficient

Gilead Sciences  Johnson Johnson

Poor diversification

The 3 months correlation between Gilead and Johnson is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Gilead Sciences 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 Gilead Sciences 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 Gilead Sciences i.e., Gilead Sciences and Johnson Johnson go up and down completely randomly.

Pair Corralation between Gilead Sciences and Johnson Johnson

Given the investment horizon of 90 days Gilead Sciences is expected to under-perform the Johnson Johnson. But the stock apears to be less risky and, when comparing its historical volatility, Gilead Sciences is 1.05 times less risky than Johnson Johnson. The stock trades about -0.37 of its potential returns per unit of risk. The Johnson Johnson is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  15,577  in Johnson Johnson on January 26, 2024 and sell it today you would lose (724.00) from holding Johnson Johnson or give up 4.65% of portfolio value over 90 days.

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

Gilead Sciences  vs.  Johnson Johnson

Gilead Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gilead Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Johnson Johnson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Johnson has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

Pair Trading with Gilead Sciences and Johnson Johnson

The main advantage of trading using opposite Gilead Sciences and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gilead Sciences 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 Gilead Sciences 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.