Correlation Between Johnson Institutional and Johnson Core

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

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

Diversification Opportunities for Johnson Institutional and Johnson Core

1.0

Correlation Coefficient

Johnson Institutional  Johnson Core

No risk reduction

The 3 months correlation between Johnson and Johnson is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Institutional Intermed and Johnson Core Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Core Plus and Johnson Institutional 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 Institutional Intermediate are associated (or correlated) with Johnson Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Core Plus has no effect on the direction of Johnson Institutional i.e., Johnson Institutional and Johnson Core go up and down completely randomly.

Pair Corralation between Johnson Institutional and Johnson Core

Assuming the 90 days horizon Johnson Institutional Intermediate is expected to generate 0.66 times more return on investment than Johnson Core. However, Johnson Institutional Intermediate is 1.51 times less risky than Johnson Core. It trades about -0.08 of its potential returns per unit of risk. Johnson Core Plus is currently generating about -0.09 per unit of risk. If you would invest  1,481  in Johnson Institutional Intermediate on September 5, 2024 and sell it today you would lose (17.00) from holding Johnson Institutional Intermediate or give up 1.15% of portfolio value over 90 days.

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

Johnson Institutional Intermed  vs.  Johnson Core Plus

Johnson Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Institutional Intermediate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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.

Johnson Core Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Core Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Johnson Core 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 Institutional and Johnson Core

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

The idea behind Johnson Institutional Intermediate and Johnson Core Plus 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.