Correlation Between JPM China and WisdomTree Natural

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

By analyzing existing cross correlation between JPM China A and WisdomTree Natural Gas, you can compare the effects of market volatilities on JPM China and WisdomTree Natural 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 China with a short position of WisdomTree Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of JPM China and WisdomTree Natural.

Diversification Opportunities for JPM China and WisdomTree Natural

0.49

Correlation Coefficient

JPM China  WisdomTree Natural

Very weak diversification

The 3 months correlation between JPM and WisdomTree is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding JPM China A and WisdomTree Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Natural Gas and JPM China 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 China A are associated (or correlated) with WisdomTree Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Natural Gas has no effect on the direction of JPM China i.e., JPM China and WisdomTree Natural go up and down completely randomly.

Pair Corralation between JPM China and WisdomTree Natural

Assuming the 90 days trading horizon JPM China is expected to generate 705.36 times less return on investment than WisdomTree Natural. But when comparing it to its historical volatility, JPM China A is 10.54 times less risky than WisdomTree Natural. It trades about 0.0 of its potential returns per unit of risk. WisdomTree Natural Gas is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  130,780  in WisdomTree Natural Gas on December 24, 2024 and sell it today you would earn a total of  104,942  from holding WisdomTree Natural Gas or generate 80.24% return on investment over 90 days.

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

JPM China A  vs.  WisdomTree Natural Gas

JPM China A

Risk-Adjusted Performance

Very Weak

Over the last 90 days JPM China A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, JPM China is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Natural Gas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Natural Gas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WisdomTree Natural unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JPM China and WisdomTree Natural

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

The idea behind JPM China A and WisdomTree Natural Gas 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.