Correlation Between Johnson Health and Allied Industrial

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

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

Diversification Opportunities for Johnson Health and Allied Industrial

0.32

Correlation Coefficient

Johnson Health  Allied Industrial

Weak diversification

The 3 months correlation between Johnson and Allied is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Health Tech and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial and Johnson Health 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 Johnson Health Tech are associated (or correlated) with Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of Johnson Health i.e., Johnson Health and Allied Industrial go up and down completely randomly.

Pair Corralation between Johnson Health and Allied Industrial

Assuming the 90 days trading horizon Johnson Health Tech is expected to generate 3.27 times more return on investment than Allied Industrial. However, Johnson Health is 3.27 times more volatile than Allied Industrial. It trades about 0.05 of its potential returns per unit of risk. Allied Industrial is currently generating about 0.09 per unit of risk. If you would invest  17,300  in Johnson Health Tech on October 7, 2024 and sell it today you would earn a total of  800.00  from holding Johnson Health Tech or generate 4.62% return on investment over 90 days.

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

Johnson Health Tech  vs.  Allied Industrial

Johnson Health Tech

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Health Tech are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Johnson Health showed solid returns over the last few months and may actually be approaching a breakup point.

Allied Industrial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Industrial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Allied Industrial 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 Johnson Health and Allied Industrial

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

The idea behind Johnson Health Tech and Allied Industrial 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.