Correlation Between JD Sports and Two Harbors

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

By analyzing existing cross correlation between JD Sports Fashion and Two Harbors Investments, you can compare the effects of market volatilities on JD Sports and Two Harbors 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 JD Sports with a short position of Two Harbors. Check out your portfolio center. Please also check ongoing floating volatility patterns of JD Sports and Two Harbors.

Diversification Opportunities for JD Sports and Two Harbors

-0.16

Correlation Coefficient

JD Sports  Two Harbors

Good diversification

The 3 months correlation between JDSPY and Two is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments and JD Sports 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 JD Sports Fashion are associated (or correlated) with Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of JD Sports i.e., JD Sports and Two Harbors go up and down completely randomly.

Pair Corralation between JD Sports and Two Harbors

Assuming the 90 days horizon JD Sports Fashion is expected to under-perform the Two Harbors. In addition to that, JD Sports is 13.14 times more volatile than Two Harbors Investments. It trades about -0.12 of its total potential returns per unit of risk. Two Harbors Investments is currently generating about -0.01 per unit of volatility. If you would invest  2,495  in Two Harbors Investments on October 8, 2024 and sell it today you would lose (5.00) from holding Two Harbors Investments or give up 0.2% of portfolio value over 90 days.

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

JD Sports Fashion  vs.  Two Harbors Investments

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Two Harbors Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Two Harbors Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Two Harbors is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with JD Sports and Two Harbors

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

The idea behind JD Sports Fashion and Two Harbors Investments 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.