Correlation Between GlaxoSmithKline PLC and Johnson Johnson

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

Diversification Opportunities for GlaxoSmithKline PLC and Johnson Johnson

0.57

Correlation Coefficient

GlaxoSmithKline PLC  Johnson Johnson

Very weak diversification

The 3 months correlation between GlaxoSmithKline and Johnson is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and GlaxoSmithKline 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 GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Johnson Johnson go up and down completely randomly.

Pair Corralation between GlaxoSmithKline PLC and Johnson Johnson

Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to generate 0.8 times more return on investment than Johnson Johnson. However, GlaxoSmithKline PLC ADR is 1.25 times less risky than Johnson Johnson. It trades about 0.28 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.05 per unit of risk. If you would invest  4,085  in GlaxoSmithKline PLC ADR on February 6, 2024 and sell it today you would earn a total of  265.00  from holding GlaxoSmithKline PLC ADR or generate 6.49% return on investment over 90 days.

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

GlaxoSmithKline PLC ADR  vs.  Johnson Johnson

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GlaxoSmithKline PLC ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

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 relatively steady basic indicators, Johnson Johnson is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with GlaxoSmithKline PLC and Johnson Johnson

The main advantage of trading using opposite GlaxoSmithKline PLC and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline 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 GlaxoSmithKline PLC ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.