Correlation Between Johnson Johnson and Gilead Sciences

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

Diversification Opportunities for Johnson Johnson and Gilead Sciences

0.71

Correlation Coefficient

Johnson Johnson  Gilead Sciences

Poor diversification

The 3 months correlation between Johnson and Gilead is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and Gilead Sciences go up and down completely randomly.

Pair Corralation between Johnson Johnson and Gilead Sciences

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the Gilead Sciences. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.53 times less risky than Gilead Sciences. The stock trades about -0.03 of its potential returns per unit of risk. The Gilead Sciences is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,826  in Gilead Sciences on January 25, 2024 and sell it today you would earn a total of  882.00  from holding Gilead Sciences or generate 15.14% return on investment over 90 days.

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

Johnson Johnson  vs.  Gilead 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.

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.

Pair Trading with Johnson Johnson and Gilead Sciences

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

The idea behind Johnson Johnson and Gilead 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.