Correlation Between Johnson Controls and LIXIL

Can any of the company-specific risk be diversified away by investing in both Johnson Controls and LIXIL 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 LIXIL 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 LIXIL, you can compare the effects of market volatilities on Johnson Controls and LIXIL 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 LIXIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and LIXIL.

Diversification Opportunities for Johnson Controls and LIXIL

0.63

Correlation Coefficient

Johnson Controls  LIXIL

Poor diversification

The 3 months correlation between Johnson and LIXIL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and LIXIL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIXIL 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 LIXIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIXIL has no effect on the direction of Johnson Controls i.e., Johnson Controls and LIXIL go up and down completely randomly.

Pair Corralation between Johnson Controls and LIXIL

If you would invest  7,041  in Johnson Controls International on September 3, 2024 and sell it today you would earn a total of  1,345  from holding Johnson Controls International or generate 19.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

Johnson Controls International  vs.  LIXIL

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.

LIXIL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LIXIL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, LIXIL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Johnson Controls and LIXIL

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

The idea behind Johnson Controls International and LIXIL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.