Correlation Between JAR and REDLANG

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

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

Diversification Opportunities for JAR and REDLANG

0.65

Correlation Coefficient

JAR  REDLANG

Poor diversification

The 3 months correlation between JAR and REDLANG is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding JAR and REDLANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REDLANG and JAR 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 JAR are associated (or correlated) with REDLANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REDLANG has no effect on the direction of JAR i.e., JAR and REDLANG go up and down completely randomly.

Pair Corralation between JAR and REDLANG

Assuming the 90 days trading horizon JAR is expected to generate 0.61 times more return on investment than REDLANG. However, JAR is 1.63 times less risky than REDLANG. It trades about 0.25 of its potential returns per unit of risk. REDLANG is currently generating about 0.1 per unit of risk. If you would invest  0.23  in JAR on September 1, 2024 and sell it today you would earn a total of  0.16  from holding JAR or generate 67.86% return on investment over 90 days.

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

JAR  vs.  REDLANG

JAR

Risk-Adjusted Performance

20 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JAR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JAR exhibited solid returns over the last few months and may actually be approaching a breakup point.

REDLANG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in REDLANG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, REDLANG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAR and REDLANG

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

The idea behind JAR and REDLANG 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.