Correlation Between Johnson Matthey and London Security

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

By analyzing existing cross correlation between Johnson Matthey PLC and London Security Plc, you can compare the effects of market volatilities on Johnson Matthey and London Security 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 Matthey with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Matthey and London Security.

Diversification Opportunities for Johnson Matthey and London Security

0.79

Correlation Coefficient

Johnson Matthey  London Security

Poor diversification

The 3 months correlation between Johnson and London is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Matthey PLC and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Johnson Matthey 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 Matthey PLC are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Johnson Matthey i.e., Johnson Matthey and London Security go up and down completely randomly.

Pair Corralation between Johnson Matthey and London Security

Assuming the 90 days trading horizon Johnson Matthey PLC is expected to under-perform the London Security. In addition to that, Johnson Matthey is 1.66 times more volatile than London Security Plc. It trades about -0.01 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.07 per unit of volatility. If you would invest  281,604  in London Security Plc on October 6, 2024 and sell it today you would earn a total of  58,396  from holding London Security Plc or generate 20.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

Johnson Matthey PLC  vs.  London Security Plc

Johnson Matthey PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Matthey PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Johnson Matthey and London Security

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

The idea behind Johnson Matthey PLC and London Security Plc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.