Correlation Between TNB and JAR

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

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

Diversification Opportunities for TNB and JAR

0.99

Correlation Coefficient

TNB  JAR

No risk reduction

The 3 months correlation between TNB and JAR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding TNB and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR and TNB 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 TNB are associated (or correlated) with JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of TNB i.e., TNB and JAR go up and down completely randomly.

Pair Corralation between TNB and JAR

Assuming the 90 days trading horizon TNB is expected to generate 1.01 times less return on investment than JAR. But when comparing it to its historical volatility, TNB is 1.03 times less risky than JAR. It trades about 0.26 of its potential returns per unit of risk. JAR is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  0.23  in JAR on September 1, 2024 and sell it today you would earn a total of  0.16  from holding JAR or generate 67.86% return on investment over 90 days.

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

TNB  vs.  JAR

TNB

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TNB are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, TNB exhibited solid returns over the last few months and may actually be approaching a breakup point.

JAR

Risk-Adjusted Performance

20 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JAR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JAR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TNB and JAR

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

The idea behind TNB and JAR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.