Correlation Between Roche Holding and Johnson Johnson

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

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

Diversification Opportunities for Roche Holding and Johnson Johnson

0.74

Correlation Coefficient

Roche Holding  Johnson Johnson

Poor diversification

The 3 months correlation between Roche and Johnson is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding Ltd and Johnson Johnson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Johnson and Roche Holding 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 Roche Holding Ltd 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 Roche Holding i.e., Roche Holding and Johnson Johnson go up and down completely randomly.

Pair Corralation between Roche Holding and Johnson Johnson

Assuming the 90 days horizon Roche Holding Ltd is expected to generate 0.89 times more return on investment than Johnson Johnson. However, Roche Holding Ltd is 1.12 times less risky than Johnson Johnson. It trades about -0.05 of its potential returns per unit of risk. Johnson Johnson is currently generating about -0.06 per unit of risk. If you would invest  3,024  in Roche Holding Ltd on February 5, 2024 and sell it today you would lose (41.00) from holding Roche Holding Ltd or give up 1.36% of portfolio value over 90 days.

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

Roche Holding Ltd  vs.  Johnson Johnson

Roche Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roche Holding Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Roche Holding is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Roche Holding and Johnson Johnson

The main advantage of trading using opposite Roche Holding and Johnson Johnson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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 Roche Holding Ltd 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.