Correlation Between Johnson Electric and Constellation Software

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

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

Diversification Opportunities for Johnson Electric and Constellation Software

0.13

Correlation Coefficient

Johnson Electric  Constellation Software

Average diversification

The 3 months correlation between Johnson and Constellation is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Electric Holdings and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Johnson Electric 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 Electric Holdings are associated (or correlated) with Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of Johnson Electric i.e., Johnson Electric and Constellation Software go up and down completely randomly.

Pair Corralation between Johnson Electric and Constellation Software

Assuming the 90 days trading horizon Johnson Electric Holdings is expected to generate 1.93 times more return on investment than Constellation Software. However, Johnson Electric is 1.93 times more volatile than Constellation Software. It trades about 0.26 of its potential returns per unit of risk. Constellation Software is currently generating about -0.33 per unit of risk. If you would invest  115.00  in Johnson Electric Holdings on October 9, 2024 and sell it today you would earn a total of  18.00  from holding Johnson Electric Holdings or generate 15.65% return on investment over 90 days.

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

Johnson Electric Holdings  vs.  Constellation Software

Johnson Electric Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Constellation Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Johnson Electric and Constellation Software

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

The idea behind Johnson Electric Holdings and Constellation Software 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.