Correlation Between JB Hi and SPASX 20

Can any of the company-specific risk be diversified away by investing in both JB Hi and SPASX 20 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 JB Hi and SPASX 20 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between JB Hi Fi and SPASX 20, you can compare the effects of market volatilities on JB Hi and SPASX 20 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 JB Hi with a short position of SPASX 20. Check out your portfolio center. Please also check ongoing floating volatility patterns of JB Hi and SPASX 20.

Diversification Opportunities for JB Hi and SPASX 20

0.76

Correlation Coefficient

JB Hi  SPASX 20

Poor diversification

The 3 months correlation between JBH and SPASX is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding JB Hi Fi and SPASX 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPASX 20 and JB Hi 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 JB Hi Fi are associated (or correlated) with SPASX 20. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPASX 20 has no effect on the direction of JB Hi i.e., JB Hi and SPASX 20 go up and down completely randomly.

Pair Corralation between JB Hi and SPASX 20

Assuming the 90 days trading horizon JB Hi Fi is expected to generate 2.44 times more return on investment than SPASX 20. However, JB Hi is 2.44 times more volatile than SPASX 20. It trades about 0.15 of its potential returns per unit of risk. SPASX 20 is currently generating about 0.06 per unit of risk. If you would invest  8,158  in JB Hi Fi on September 13, 2024 and sell it today you would earn a total of  1,158  from holding JB Hi Fi or generate 14.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

JB Hi Fi  vs.  SPASX 20

Pair Trading with JB Hi and SPASX 20

The main advantage of trading using opposite JB Hi and SPASX 20 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JB Hi position performs unexpectedly, SPASX 20 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 SPASX 20 will offset losses from the drop in SPASX 20's long position.

The idea behind JB Hi Fi and SPASX 20 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.