Correlation Between Johnson Institutional and Johnson Equity

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

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

Diversification Opportunities for Johnson Institutional and Johnson Equity

0.43

Correlation Coefficient

Johnson Institutional  Johnson Equity

Very weak diversification

The 3 months correlation between Johnson and Johnson is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Institutional Intermed and Johnson Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Equity Income and Johnson Institutional 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 Institutional Intermediate are associated (or correlated) with Johnson Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Equity Income has no effect on the direction of Johnson Institutional i.e., Johnson Institutional and Johnson Equity go up and down completely randomly.

Pair Corralation between Johnson Institutional and Johnson Equity

Assuming the 90 days horizon Johnson Institutional Intermediate is expected to generate 0.11 times more return on investment than Johnson Equity. However, Johnson Institutional Intermediate is 9.28 times less risky than Johnson Equity. It trades about -0.29 of its potential returns per unit of risk. Johnson Equity Income is currently generating about -0.28 per unit of risk. If you would invest  1,491  in Johnson Institutional Intermediate on October 12, 2024 and sell it today you would lose (16.00) from holding Johnson Institutional Intermediate or give up 1.07% of portfolio value over 90 days.

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

Johnson Institutional Intermed  vs.  Johnson Equity Income

Johnson Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Institutional Intermediate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and 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.

Johnson Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Institutional and Johnson Equity

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

The idea behind Johnson Institutional Intermediate and Johnson Equity Income 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.