Correlation Between Johnson Enhanced and Johnson Institutional

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

By analyzing existing cross correlation between Johnson Enhanced Return and Johnson Institutional Short, you can compare the effects of market volatilities on Johnson Enhanced and Johnson Institutional 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 Enhanced with a short position of Johnson Institutional. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Enhanced and Johnson Institutional.

Diversification Opportunities for Johnson Enhanced and Johnson Institutional

0.05

Correlation Coefficient

Johnson Enhanced  Johnson Institutional

Significant diversification

The 3 months correlation between Johnson and Johnson is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Enhanced Return and Johnson Institutional Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Institutional and Johnson Enhanced 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 Enhanced Return are associated (or correlated) with Johnson Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Institutional has no effect on the direction of Johnson Enhanced i.e., Johnson Enhanced and Johnson Institutional go up and down completely randomly.

Pair Corralation between Johnson Enhanced and Johnson Institutional

Assuming the 90 days horizon Johnson Enhanced Return is expected to under-perform the Johnson Institutional. In addition to that, Johnson Enhanced is 14.95 times more volatile than Johnson Institutional Short. It trades about -0.09 of its total potential returns per unit of risk. Johnson Institutional Short is currently generating about 0.25 per unit of volatility. If you would invest  1,500  in Johnson Institutional Short on October 27, 2024 and sell it today you would earn a total of  7.00  from holding Johnson Institutional Short or generate 0.47% return on investment over 90 days.

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

Johnson Enhanced Return  vs.  Johnson Institutional Short

Johnson Enhanced Return

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Enhanced Return has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Johnson Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Johnson Institutional

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Institutional Short are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Johnson Institutional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Johnson Enhanced and Johnson Institutional

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

The idea behind Johnson Enhanced Return and Johnson Institutional Short 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.