Correlation Between Johnson Mutual and Johnson International

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

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

Diversification Opportunities for Johnson Mutual and Johnson International

0.76

Correlation Coefficient

Johnson Mutual  Johnson International

Poor diversification

The 3 months correlation between Johnson and Johnson is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Mutual Funds and Johnson International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson International and Johnson Mutual 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 Mutual Funds are associated (or correlated) with Johnson International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson International has no effect on the direction of Johnson Mutual i.e., Johnson Mutual and Johnson International go up and down completely randomly.

Pair Corralation between Johnson Mutual and Johnson International

Assuming the 90 days horizon Johnson Mutual Funds is expected to generate 0.41 times more return on investment than Johnson International. However, Johnson Mutual Funds is 2.45 times less risky than Johnson International. It trades about -0.04 of its potential returns per unit of risk. Johnson International Fund is currently generating about -0.12 per unit of risk. If you would invest  1,426  in Johnson Mutual Funds on October 27, 2024 and sell it today you would lose (12.00) from holding Johnson Mutual Funds or give up 0.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Johnson Mutual Funds  vs.  Johnson International Fund

Johnson Mutual Funds

Risk-Adjusted Performance

0 of 100

Very Weak

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

Johnson International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson International Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Johnson Mutual and Johnson International

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

The idea behind Johnson Mutual Funds and Johnson International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.