Correlation Between Johnson Controls and Advanced Drainage

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

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

Diversification Opportunities for Johnson Controls and Advanced Drainage

-0.75

Correlation Coefficient

Johnson Controls  Advanced Drainage

Pay attention - limited upside

The 3 months correlation between Johnson and Advanced is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Johnson Controls 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 Controls International are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Johnson Controls i.e., Johnson Controls and Advanced Drainage go up and down completely randomly.

Pair Corralation between Johnson Controls and Advanced Drainage

Considering the 90-day investment horizon Johnson Controls is expected to generate 1.56 times less return on investment than Advanced Drainage. But when comparing it to its historical volatility, Johnson Controls International is 1.52 times less risky than Advanced Drainage. It trades about 0.04 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,055  in Advanced Drainage Systems on September 23, 2024 and sell it today you would earn a total of  3,460  from holding Advanced Drainage Systems or generate 42.95% return on investment over 90 days.

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

Johnson Controls International  vs.  Advanced Drainage Systems

Johnson Controls Int

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Johnson Controls may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Johnson Controls and Advanced Drainage

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

The idea behind Johnson Controls International and Advanced Drainage Systems 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.