Correlation Between Wonderful and Johnson Chemical

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

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

Diversification Opportunities for Wonderful and Johnson Chemical

0.12

Correlation Coefficient

Wonderful  Johnson Chemical

Average diversification

The 3 months correlation between Wonderful and Johnson is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Wonderful Hi Tech Co 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 Wonderful 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 Wonderful Hi Tech Co 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 Wonderful i.e., Wonderful and Johnson Chemical go up and down completely randomly.

Pair Corralation between Wonderful and Johnson Chemical

Assuming the 90 days trading horizon Wonderful Hi Tech Co is expected to under-perform the Johnson Chemical. In addition to that, Wonderful is 1.09 times more volatile than Johnson Chemical Pharmaceutical. It trades about -0.03 of its total potential returns per unit of risk. Johnson Chemical Pharmaceutical is currently generating about 0.03 per unit of volatility. If you would invest  6,920  in Johnson Chemical Pharmaceutical on October 12, 2024 and sell it today you would earn a total of  150.00  from holding Johnson Chemical Pharmaceutical or generate 2.17% return on investment over 90 days.

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

Wonderful Hi Tech Co  vs.  Johnson Chemical Pharmaceutica

Wonderful Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wonderful Hi Tech Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wonderful 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 Wonderful and Johnson Chemical

The main advantage of trading using opposite Wonderful and Johnson Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wonderful 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 Wonderful Hi Tech Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.