Correlation Between Air Transport and Johnson Controls

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

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

Diversification Opportunities for Air Transport and Johnson Controls

0.84

Correlation Coefficient

Air Transport  Johnson Controls

Very poor diversification

The 3 months correlation between Air and Johnson is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int and Air Transport 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 Air Transport Services are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Air Transport i.e., Air Transport and Johnson Controls go up and down completely randomly.

Pair Corralation between Air Transport and Johnson Controls

Assuming the 90 days horizon Air Transport is expected to generate 1.13 times less return on investment than Johnson Controls. But when comparing it to its historical volatility, Air Transport Services is 2.67 times less risky than Johnson Controls. It trades about 0.11 of its potential returns per unit of risk. Johnson Controls International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,758  in Johnson Controls International on October 26, 2024 and sell it today you would earn a total of  73.00  from holding Johnson Controls International or generate 0.94% return on investment over 90 days.

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

Air Transport Services  vs.  Johnson Controls International

Air Transport Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Johnson Controls Int

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Johnson Controls may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Air Transport and Johnson Controls

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

The idea behind Air Transport Services and Johnson Controls International 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.