Correlation Between Johnson Johnson and GlaxoSmithKline PLC

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

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

Diversification Opportunities for Johnson Johnson and GlaxoSmithKline PLC

0.19

Correlation Coefficient

Johnson Johnson  GlaxoSmithKline PLC

Average diversification

The 3 months correlation between Johnson and GlaxoSmithKline is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Johnson and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Johnson Johnson i.e., Johnson Johnson and GlaxoSmithKline PLC go up and down completely randomly.

Pair Corralation between Johnson Johnson and GlaxoSmithKline PLC

Considering the 90-day investment horizon Johnson Johnson is expected to under-perform the GlaxoSmithKline PLC. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Johnson is 1.18 times less risky than GlaxoSmithKline PLC. The stock trades about -0.22 of its potential returns per unit of risk. The GlaxoSmithKline PLC ADR is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,915  in GlaxoSmithKline PLC ADR on January 20, 2024 and sell it today you would earn a total of  12.00  from holding GlaxoSmithKline PLC ADR or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Johnson Johnson  vs.  GlaxoSmithKline PLC ADR

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 uncertain 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.

GlaxoSmithKline PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlaxoSmithKline PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, GlaxoSmithKline PLC is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Johnson Johnson and GlaxoSmithKline PLC

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

The idea behind Johnson Johnson and GlaxoSmithKline PLC ADR 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.

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 Stocks Directory module to find actively traded stocks across global markets.