Correlation Between JPM America and FF Germany

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

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

Diversification Opportunities for JPM America and FF Germany

0.68

Correlation Coefficient

JPM America  FF Germany

Poor diversification

The 3 months correlation between JPM and FJ2L is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding JPM America Equity and FF Germany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FF Germany and JPM America 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 JPM America Equity are associated (or correlated) with FF Germany. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FF Germany has no effect on the direction of JPM America i.e., JPM America and FF Germany go up and down completely randomly.

Pair Corralation between JPM America and FF Germany

Assuming the 90 days trading horizon JPM America is expected to generate 2.77 times less return on investment than FF Germany. In addition to that, JPM America is 1.43 times more volatile than FF Germany. It trades about 0.11 of its total potential returns per unit of risk. FF Germany is currently generating about 0.43 per unit of volatility. If you would invest  7,256  in FF Germany on October 24, 2024 and sell it today you would earn a total of  297.00  from holding FF Germany or generate 4.09% return on investment over 90 days.

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

JPM America Equity  vs.  FF Germany

JPM America Equity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JPM America Equity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather unsteady technical and fundamental indicators, JPM America may actually be approaching a critical reversion point that can send shares even higher in February 2025.

FF Germany

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FF Germany are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather weak technical and fundamental indicators, FF Germany may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with JPM America and FF Germany

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

The idea behind JPM America Equity and FF Germany 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.