Correlation Between Lennox International and Johnson Controls

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

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

Diversification Opportunities for Lennox International and Johnson Controls

0.08

Correlation Coefficient

Lennox International  Johnson Controls

Significant diversification

The 3 months correlation between Lennox and Johnson is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Johnson Controls International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Controls Int and Lennox International 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 Lennox International are associated (or correlated) with Johnson Controls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Controls Int has no effect on the direction of Lennox International i.e., Lennox International and Johnson Controls go up and down completely randomly.

Pair Corralation between Lennox International and Johnson Controls

Considering the 90-day investment horizon Lennox International is expected to under-perform the Johnson Controls. In addition to that, Lennox International is 1.03 times more volatile than Johnson Controls International. It trades about -0.06 of its total potential returns per unit of risk. Johnson Controls International is currently generating about 0.02 per unit of volatility. If you would invest  7,879  in Johnson Controls International on December 28, 2024 and sell it today you would earn a total of  90.00  from holding Johnson Controls International or generate 1.14% return on investment over 90 days.

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

Lennox International  vs.  Johnson Controls International

Lennox International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lennox International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Johnson Controls Int

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Johnson Controls is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lennox International and Johnson Controls

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

The idea behind Lennox International and Johnson Controls International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.