Correlation Between JPM America and ALM Classic

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

By analyzing existing cross correlation between JPM America Equity and ALM Classic RA, you can compare the effects of market volatilities on JPM America and ALM Classic 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 JPM America with a short position of ALM Classic. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPM America and ALM Classic.

Diversification Opportunities for JPM America and ALM Classic

0.89

Correlation Coefficient

JPM America  ALM Classic

Very poor diversification

The 3 months correlation between JPM and ALM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding JPM America Equity and ALM Classic RA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALM Classic RA and JPM America 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 JPM America Equity are associated (or correlated) with ALM Classic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALM Classic RA has no effect on the direction of JPM America i.e., JPM America and ALM Classic go up and down completely randomly.

Pair Corralation between JPM America and ALM Classic

Assuming the 90 days trading horizon JPM America Equity is expected to generate 5.08 times more return on investment than ALM Classic. However, JPM America is 5.08 times more volatile than ALM Classic RA. It trades about 0.23 of its potential returns per unit of risk. ALM Classic RA is currently generating about 0.26 per unit of risk. If you would invest  37,990  in JPM America Equity on September 6, 2024 and sell it today you would earn a total of  6,390  from holding JPM America Equity or generate 16.82% return on investment over 90 days.

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

JPM America Equity  vs.  ALM Classic RA

JPM America Equity

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JPM America Equity are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unsteady technical and fundamental indicators, JPM America exhibited solid returns over the last few months and may actually be approaching a breakup point.

ALM Classic RA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Classic RA are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, ALM Classic is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with JPM America and ALM Classic

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

The idea behind JPM America Equity and ALM Classic RA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.