Can any of the company-specific risk be diversified away by investing in both JJ SNACK and CODERE ONLINE 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 JJ SNACK and CODERE ONLINE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between JJ SNACK FOODS and CODERE ONLINE LUX, you can compare the effects of market volatilities on JJ SNACK and CODERE ONLINE 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 JJ SNACK with a short position of CODERE ONLINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of JJ SNACK and CODERE ONLINE.
Diversification Opportunities for JJ SNACK and CODERE ONLINE
The 3 months correlation between JJ1 and CODERE is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding JJ SNACK FOODS and CODERE ONLINE LUX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CODERE ONLINE LUX and JJ SNACK 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 JJ SNACK FOODS are associated (or correlated) with CODERE ONLINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CODERE ONLINE LUX has no effect on the direction of JJ SNACK i.e., JJ SNACK and CODERE ONLINE go up and down completely randomly.
Pair Corralation between JJ SNACK and CODERE ONLINE
Assuming the 90 days trading horizon JJ SNACK FOODS is expected to generate 0.35 times more return on investment than CODERE ONLINE. However, JJ SNACK FOODS is 2.89 times less risky than CODERE ONLINE. It trades about -0.01 of its potential returns per unit of risk. CODERE ONLINE LUX is currently generating about -0.03 per unit of risk. If you would invest 15,326 in JJ SNACK FOODS on October 1, 2024 and sell it today you would lose (126.00) from holding JJ SNACK FOODS or give up 0.82% of portfolio value over 90 days.
Over the last 90 days JJ SNACK FOODS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, JJ SNACK is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
Over the last 90 days CODERE ONLINE LUX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CODERE ONLINE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite JJ SNACK and CODERE ONLINE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JJ SNACK position performs unexpectedly, CODERE ONLINE 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 CODERE ONLINE will offset losses from the drop in CODERE ONLINE's long position.