Correlation Between Leader Electronics and Johnson Health

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

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

Diversification Opportunities for Leader Electronics and Johnson Health

-0.62

Correlation Coefficient

Leader Electronics  Johnson Health

Excellent diversification

The 3 months correlation between Leader and Johnson is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and Johnson Health Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Health Tech and Leader Electronics 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 Leader Electronics are associated (or correlated) with Johnson Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Health Tech has no effect on the direction of Leader Electronics i.e., Leader Electronics and Johnson Health go up and down completely randomly.

Pair Corralation between Leader Electronics and Johnson Health

Assuming the 90 days trading horizon Leader Electronics is expected to generate 1.7 times less return on investment than Johnson Health. In addition to that, Leader Electronics is 1.15 times more volatile than Johnson Health Tech. It trades about 0.05 of its total potential returns per unit of risk. Johnson Health Tech is currently generating about 0.09 per unit of volatility. If you would invest  6,898  in Johnson Health Tech on September 20, 2024 and sell it today you would earn a total of  11,602  from holding Johnson Health Tech or generate 168.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Leader Electronics  vs.  Johnson Health Tech

Leader Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leader Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Johnson Health Tech

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Health Tech are ranked lower than 14 (%) 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.

Pair Trading with Leader Electronics and Johnson Health

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

The idea behind Leader Electronics and Johnson Health Tech 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.