Correlation Between Jennison Natural and Fam Small

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

By analyzing existing cross correlation between Jennison Natural Resources and Fam Small Cap, you can compare the effects of market volatilities on Jennison Natural and Fam Small 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 Jennison Natural with a short position of Fam Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jennison Natural and Fam Small.

Diversification Opportunities for Jennison Natural and Fam Small

0.29

Correlation Coefficient

Jennison Natural  Fam Small

Modest diversification

The 3 months correlation between Jennison and Fam is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Jennison Natural Resources and Fam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Small Cap and Jennison Natural 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 Jennison Natural Resources are associated (or correlated) with Fam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Small Cap has no effect on the direction of Jennison Natural i.e., Jennison Natural and Fam Small go up and down completely randomly.

Pair Corralation between Jennison Natural and Fam Small

Assuming the 90 days horizon Jennison Natural is expected to generate 5.35 times less return on investment than Fam Small. In addition to that, Jennison Natural is 1.12 times more volatile than Fam Small Cap. It trades about 0.02 of its total potential returns per unit of risk. Fam Small Cap is currently generating about 0.13 per unit of volatility. If you would invest  2,742  in Fam Small Cap on September 14, 2024 and sell it today you would earn a total of  218.00  from holding Fam Small Cap or generate 7.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Jennison Natural Resources  vs.  Fam Small Cap

Jennison Natural Res

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jennison Natural Resources are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Jennison Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fam Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Fam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Jennison Natural and Fam Small

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

The idea behind Jennison Natural Resources and Fam Small Cap 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.