Correlation Between Standard Chemical and Johnson Chemical

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

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

Diversification Opportunities for Standard Chemical and Johnson Chemical

-0.18

Correlation Coefficient

Standard Chemical  Johnson Chemical

Good diversification

The 3 months correlation between Standard and Johnson is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Standard Chemical Pharmaceutic and Johnson Chemical Pharmaceutica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Chemical Pha and Standard Chemical 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 Standard Chemical Pharmaceutical are associated (or correlated) with Johnson Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Chemical Pha has no effect on the direction of Standard Chemical i.e., Standard Chemical and Johnson Chemical go up and down completely randomly.

Pair Corralation between Standard Chemical and Johnson Chemical

Assuming the 90 days trading horizon Standard Chemical Pharmaceutical is expected to under-perform the Johnson Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Standard Chemical Pharmaceutical is 2.1 times less risky than Johnson Chemical. The stock trades about -0.3 of its potential returns per unit of risk. The Johnson Chemical Pharmaceutical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,080  in Johnson Chemical Pharmaceutical on October 12, 2024 and sell it today you would earn a total of  210.00  from holding Johnson Chemical Pharmaceutical or generate 2.97% return on investment over 90 days.

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

Standard Chemical Pharmaceutic  vs.  Johnson Chemical Pharmaceutica

Standard Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Chemical Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Standard Chemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Johnson Chemical Pha

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Chemical Pharmaceutical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Johnson Chemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Standard Chemical and Johnson Chemical

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

The idea behind Standard Chemical Pharmaceutical and Johnson Chemical Pharmaceutical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.