Correlation Between Johnson Municipal and Johnson Enhanced

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

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

Diversification Opportunities for Johnson Municipal and Johnson Enhanced

0.72

Correlation Coefficient

Johnson Municipal  Johnson Enhanced

Poor diversification

The 3 months correlation between Johnson and Johnson is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Municipal Income and Johnson Enhanced Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Enhanced Return and Johnson Municipal 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 Municipal Income are associated (or correlated) with Johnson Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Enhanced Return has no effect on the direction of Johnson Municipal i.e., Johnson Municipal and Johnson Enhanced go up and down completely randomly.

Pair Corralation between Johnson Municipal and Johnson Enhanced

Assuming the 90 days horizon Johnson Municipal is expected to generate 16.85 times less return on investment than Johnson Enhanced. But when comparing it to its historical volatility, Johnson Municipal Income is 4.25 times less risky than Johnson Enhanced. It trades about 0.02 of its potential returns per unit of risk. Johnson Enhanced Return is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,539  in Johnson Enhanced Return on October 12, 2024 and sell it today you would earn a total of  187.00  from holding Johnson Enhanced Return or generate 12.15% return on investment over 90 days.

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

Johnson Municipal Income  vs.  Johnson Enhanced Return

Johnson Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Johnson Enhanced Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Johnson Municipal and Johnson Enhanced

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

The idea behind Johnson Municipal Income and Johnson Enhanced Return 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.