Correlation Between HE Equipment and JOHNSON

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

By analyzing existing cross correlation between HE Equipment Services and JOHNSON JOHNSON 585, you can compare the effects of market volatilities on HE Equipment and JOHNSON 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 HE Equipment with a short position of JOHNSON. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and JOHNSON.

Diversification Opportunities for HE Equipment and JOHNSON

-0.72

Correlation Coefficient

HE Equipment  JOHNSON

Pay attention - limited upside

The 3 months correlation between HEES and JOHNSON is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and JOHNSON JOHNSON 585 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JOHNSON JOHNSON 585 and HE Equipment 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 HE Equipment Services are associated (or correlated) with JOHNSON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JOHNSON JOHNSON 585 has no effect on the direction of HE Equipment i.e., HE Equipment and JOHNSON go up and down completely randomly.

Pair Corralation between HE Equipment and JOHNSON

Given the investment horizon of 90 days HE Equipment Services is expected to generate 1.9 times more return on investment than JOHNSON. However, HE Equipment is 1.9 times more volatile than JOHNSON JOHNSON 585. It trades about 0.18 of its potential returns per unit of risk. JOHNSON JOHNSON 585 is currently generating about -0.03 per unit of risk. If you would invest  4,342  in HE Equipment Services on September 13, 2024 and sell it today you would earn a total of  1,329  from holding HE Equipment Services or generate 30.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

HE Equipment Services  vs.  JOHNSON JOHNSON 585

HE Equipment Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

JOHNSON JOHNSON 585

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JOHNSON JOHNSON 585 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, JOHNSON is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HE Equipment and JOHNSON

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

The idea behind HE Equipment Services and JOHNSON JOHNSON 585 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.