Correlation Between Johnson Controls and Armstrong Flooring

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

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

Diversification Opportunities for Johnson Controls and Armstrong Flooring

-0.38

Correlation Coefficient

Johnson Controls  Armstrong Flooring

Very good diversification

The 3 months correlation between Johnson and Armstrong is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Armstrong Flooring in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong Flooring and Johnson Controls 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 Controls International are associated (or correlated) with Armstrong Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong Flooring has no effect on the direction of Johnson Controls i.e., Johnson Controls and Armstrong Flooring go up and down completely randomly.

Pair Corralation between Johnson Controls and Armstrong Flooring

If you would invest  7,761  in Johnson Controls International on August 31, 2024 and sell it today you would earn a total of  610.00  from holding Johnson Controls International or generate 7.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	2.27%
Values	Daily Returns

Johnson Controls International  vs.  Armstrong Flooring

Johnson Controls Int

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Johnson Controls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Armstrong Flooring

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armstrong Flooring has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Armstrong Flooring is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Johnson Controls and Armstrong Flooring

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

The idea behind Johnson Controls International and Armstrong Flooring 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..