Correlation Between SL Private and Johnson Matthey

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

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

Diversification Opportunities for SL Private and Johnson Matthey

0.71

Correlation Coefficient

SL Private  Johnson Matthey

Poor diversification

The 3 months correlation between SLPE and Johnson is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SL Private Equity and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC and SL Private 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 SL Private Equity are associated (or correlated) with Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of SL Private i.e., SL Private and Johnson Matthey go up and down completely randomly.

Pair Corralation between SL Private and Johnson Matthey

Assuming the 90 days trading horizon SL Private is expected to generate 1.06 times less return on investment than Johnson Matthey. But when comparing it to its historical volatility, SL Private Equity is 1.79 times less risky than Johnson Matthey. It trades about 0.06 of its potential returns per unit of risk. Johnson Matthey PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  133,000  in Johnson Matthey PLC on December 30, 2024 and sell it today you would earn a total of  3,600  from holding Johnson Matthey PLC or generate 2.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

SL Private Equity  vs.  Johnson Matthey PLC

SL Private Equity

Risk-Adjusted Performance

Insignificant

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

Johnson Matthey PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Matthey PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Johnson Matthey is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SL Private and Johnson Matthey

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

The idea behind SL Private Equity and Johnson Matthey PLC 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 Anywhere module to track or share privately all of your investments from the convenience of any device.