Correlation Between JPMorgan Quality and JPMorgan Momentum

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

By analyzing existing cross correlation between JPMorgan Quality Factor and JPMorgan Momentum Factor, you can compare the effects of market volatilities on JPMorgan Quality and JPMorgan Momentum 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 JPMorgan Quality with a short position of JPMorgan Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPMorgan Quality and JPMorgan Momentum.

Diversification Opportunities for JPMorgan Quality and JPMorgan Momentum

0.98

Correlation Coefficient

JPMorgan Quality  JPMorgan Momentum

Almost no diversification

The 3 months correlation between JPMorgan and JPMorgan is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding JPMorgan Quality Factor and JPMorgan Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan Momentum Factor and JPMorgan Quality 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 JPMorgan Quality Factor are associated (or correlated) with JPMorgan Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan Momentum Factor has no effect on the direction of JPMorgan Quality i.e., JPMorgan Quality and JPMorgan Momentum go up and down completely randomly.

Pair Corralation between JPMorgan Quality and JPMorgan Momentum

Given the investment horizon of 90 days JPMorgan Quality is expected to generate 1.17 times less return on investment than JPMorgan Momentum. But when comparing it to its historical volatility, JPMorgan Quality Factor is 1.28 times less risky than JPMorgan Momentum. It trades about 0.21 of its potential returns per unit of risk. JPMorgan Momentum Factor is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,484  in JPMorgan Momentum Factor on September 12, 2024 and sell it today you would earn a total of  559.00  from holding JPMorgan Momentum Factor or generate 10.19% return on investment over 90 days.

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

JPMorgan Quality Factor  vs.  JPMorgan Momentum Factor

JPMorgan Quality Factor

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Quality Factor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, JPMorgan Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JPMorgan Momentum Factor

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan Momentum Factor are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, JPMorgan Momentum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with JPMorgan Quality and JPMorgan Momentum

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

The idea behind JPMorgan Quality Factor and JPMorgan Momentum Factor 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.