Correlation Between Johnson Equity and Johnson Institutional

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

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

Diversification Opportunities for Johnson Equity and Johnson Institutional

-0.38

Correlation Coefficient

Johnson Equity  Johnson Institutional

Very good diversification

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

Pair Corralation between Johnson Equity and Johnson Institutional

Assuming the 90 days horizon Johnson Equity Income is expected to generate 5.11 times more return on investment than Johnson Institutional. However, Johnson Equity is 5.11 times more volatile than Johnson Institutional Short. It trades about 0.1 of its potential returns per unit of risk. Johnson Institutional Short is currently generating about -0.05 per unit of risk. If you would invest  3,824  in Johnson Equity Income on September 13, 2024 and sell it today you would earn a total of  134.00  from holding Johnson Equity Income or generate 3.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Johnson Equity Income  vs.  Johnson Institutional Short

Johnson Equity Income

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Equity Income are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Johnson Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Johnson Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Institutional Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Johnson Institutional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Equity and Johnson Institutional

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

The idea behind Johnson Equity Income and Johnson Institutional Short 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.