Correlation Between Johnson Johnson and EXACT Sciences

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

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

Diversification Opportunities for Johnson Johnson and EXACT Sciences

-0.29

Correlation Coefficient

Johnson Johnson  EXACT Sciences

Very good diversification

The 3 months correlation between Johnson and EXACT is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and EXACT Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXACT Sciences 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 EXACT Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXACT Sciences has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and EXACT Sciences go up and down completely randomly.

Pair Corralation between Johnson Johnson and EXACT Sciences

Considering the 90-day investment horizon Johnson Johnson is expected to generate 0.49 times more return on investment than EXACT Sciences. However, Johnson Johnson is 2.03 times less risky than EXACT Sciences. It trades about -0.13 of its potential returns per unit of risk. EXACT Sciences is currently generating about -0.31 per unit of risk. If you would invest  15,773  in Johnson Johnson on February 2, 2024 and sell it today you would lose (655.00) from holding Johnson Johnson or give up 4.15% of portfolio value over 90 days.

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

Johnson Johnson  vs.  EXACT Sciences

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 latest stock price chaos, may contribute to medium-term losses for the stakeholders.

EXACT Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EXACT Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, EXACT Sciences is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Johnson Johnson and EXACT Sciences

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

The idea behind Johnson Johnson and EXACT Sciences 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.