Correlation Between Elite Color and Jahen Household

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

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

Diversification Opportunities for Elite Color and Jahen Household

0.91

Correlation Coefficient

Elite Color  Jahen Household

Almost no diversification

The 3 months correlation between Elite and Jahen is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Elite Color Environmental and Jahen Household Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jahen Household Products and Elite Color 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 Elite Color Environmental are associated (or correlated) with Jahen Household. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jahen Household Products has no effect on the direction of Elite Color i.e., Elite Color and Jahen Household go up and down completely randomly.

Pair Corralation between Elite Color and Jahen Household

Assuming the 90 days trading horizon Elite Color is expected to generate 1.8 times less return on investment than Jahen Household. But when comparing it to its historical volatility, Elite Color Environmental is 1.54 times less risky than Jahen Household. It trades about 0.21 of its potential returns per unit of risk. Jahen Household Products is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,135  in Jahen Household Products on September 13, 2024 and sell it today you would earn a total of  882.00  from holding Jahen Household Products or generate 77.71% return on investment over 90 days.

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

Elite Color Environmental  vs.  Jahen Household Products

Elite Color Environmental

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elite Color sustained solid returns over the last few months and may actually be approaching a breakup point.

Jahen Household Products

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jahen Household Products are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jahen Household sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elite Color and Jahen Household

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

The idea behind Elite Color Environmental and Jahen Household Products 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.