Correlation Between The Jensen and Common Stock

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

By analyzing existing cross correlation between The Jensen Portfolio and Common Stock Fund, you can compare the effects of market volatilities on The Jensen and Common Stock 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 The Jensen with a short position of Common Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Jensen and Common Stock.

Diversification Opportunities for The Jensen and Common Stock

-0.41

Correlation Coefficient

The Jensen  Common Stock

Very good diversification

The 3 months correlation between The and Common is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Jensen Portfolio and Common Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Common Stock and The Jensen 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 The Jensen Portfolio are associated (or correlated) with Common Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Common Stock has no effect on the direction of The Jensen i.e., The Jensen and Common Stock go up and down completely randomly.

Pair Corralation between The Jensen and Common Stock

Assuming the 90 days horizon The Jensen Portfolio is expected to under-perform the Common Stock. In addition to that, The Jensen is 1.4 times more volatile than Common Stock Fund. It trades about -0.07 of its total potential returns per unit of risk. Common Stock Fund is currently generating about 0.17 per unit of volatility. If you would invest  3,656  in Common Stock Fund on September 3, 2024 and sell it today you would earn a total of  401.00  from holding Common Stock Fund or generate 10.97% return on investment over 90 days.

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

The Jensen Portfolio  vs.  Common Stock Fund

Jensen Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Common Stock

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Common Stock Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Common Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with The Jensen and Common Stock

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

The idea behind The Jensen Portfolio and Common Stock Fund 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..